RBI MPC Meeting 2025: What is Monetary Policy Committee, How the rates are decided?

RBI MPC Meeting 2025: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is responsible for setting the nation’s key interest rates, particularly the repo rate, which influences borrowing costs across the economy. The committee meets every two months to assess economic conditions, inflation, and growth before making decisions on interest rates. These decisions directly affect loan rates, including education loans, making the RBI’s policies crucial for students and professionals seeking financial assistance for studies.

RBI MPC 2025: Key Highlights

The RBI’s first MPC meeting of 2025 is set to conclude on February 7, 2025, and all eyes are on new Governor Sanjay Malhotra, who assumed office in December 2024 after Shaktikanta Das’s tenure ended. This will be Malhotra’s first major decision as the head of India’s central bank.

With inflation showing signs of easing, economists predict a possible 25 basis points (bps) repo rate cut, which would be the first such cut in nearly five years. The last rate cut was in May 2020, when the RBI lowered the repo rate to 4% to support the economy during the COVID-19 pandemic. Since then, the RBI has raised rates seven times, reaching 6.5%, to tackle inflation caused by the Ukraine war, supply chain disruptions, and global price surges.

Why is a Rate Cut Expected?

There are multiple reasons why the RBI might consider a rate cut:

• Economic Growth Concerns: India’s GDP growth has slowed to 6.4% in 2024-25, prompting calls for easier monetary policy to boost demand and investment.
• Global Trends: Many countries have already started cutting interest rates, giving India some room to follow suit.
• Government Support: The Union Budget 2025 has introduced measures to support consumption, shifting focus to the RBI for further economic stimulus.
• Liquidity Measures: RBI has recently injected ₹1.5 lakh crore into the system to ensure better transmission of rate cuts to borrowers.

However, some experts caution that an early rate cut could weaken the Indian rupee further, making foreign investments less attractive and increasing imported inflation. The rupee has already depreciated sharply, crossing ₹87 per USD recently due to global economic uncertainties.

How RBI MPC Decisions Affect Students and Education Loans

The RBI’s decision on the repo rate directly impacts loan interest rates, including education loans. Here’s how it affects students:

1. Interest Rates on Education Loans

• If the repo rate is cut, banks and financial institutions may reduce interest rates on education loans.
• This means students will have to pay less in EMIs after graduation.
• A lower interest rate can make higher education more affordable, especially for students taking loans for overseas studies.

2. Easier Loan Repayment

• If interest rates decrease, students already repaying education loans could benefit from reduced EMI burdens.
• Graduates entering the job market will have more disposable income, allowing them to manage other expenses better.

3. Impact on Study Abroad Aspirations

• A weaker rupee (due to a rate cut) may increase the cost of studying abroad, as tuition fees and living expenses in foreign countries become more expensive.
• On the other hand, if education loan interest rates drop, students may still find it affordable to study at top international universities.

4. Overall Economic Impact on Job Market

• A rate cut can boost economic activity, leading to better job opportunities for students completing their education.
• Industries like technology, finance, and manufacturing might benefit from lower borrowing costs, creating new employment opportunities.

Challenges for RBI in Making the Decision

The RBI faces a tough balancing act in deciding whether to cut rates. Here are some challenges:

• Inflation Risk: Inflation has stayed above 5% for the last five months, close to the RBI’s target of 4%. A rate cut could increase inflation further, making essential goods more expensive.
• Global Economic Uncertainty: The US Federal Reserve’s policies and President Donald Trump’s aggressive trade policies are making global markets volatile. If US interest rates remain high, foreign investors might withdraw money from India, weakening the rupee further.
• Banking Liquidity Issues: Even if the RBI cuts rates, banks might not pass on the full benefits due to liquidity shortages.

Expected Outcomes

What’s Next?

The final decision on the repo rate will be announced on February 7 at 10:00 AM, followed by a press conference by Governor Sanjay Malhotra at 12:00 PM. The RBI’s decision will have significant implications for students, borrowers, and the overall economy.

For more updates on education news, stay tuned to Jagran Josh.