The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has today decided to reduce the repo rate by 25 bps from 6.50 percent to 6.25 percent in a widely anticipated move. The move is the first rate cut in nearly five years and represents a change in policy designed to steer down inflation while still allowing some economic growth. Monetary policy stance continues to be ‘neutral,’ which enables it to respond to future changing economic conditions.
Key Announcements:
- Repo Rate: Reduced from 6.50% to 6.25%
- Standing Deposit Facility (SDF) Rate: 6.00%
- Marginal Standing Facility (MSF) Rate & Bank Rate: 6.50%
The RBI Governor was Sanjay Malhotra, and he announced the decision, saying inflation is converging to the central bank’s 4% target. The rate cut was approved unanimously by the MPC but it maintained its neutral stance. The MPC remains dedicated to ensuring the pensification of inflation within the target and supporting economic growth, Malhotra added.
After 11 months in a row when the RBI had kept the key policy repo rate unchanged at 6.5 per cent, this decision has been taken. The last time the RBI had cut rates was May 2020 when it had reduced the rates by 40 basis points to 4% amid the COVID 19 pandemic.
The move is seen as a reaction to concerns over the slowing economic growth. India’s inherent strength in its economic fundamentals has hardly been disrupted over the years, but the central bank does believe signs of moderation in growth momentum, and even the inflation crossing its 4 per cent target require some moderating of its stance.
By this move, experts agree that the RBI is hinting at a carefully conceived shift in policy that would be consistent with inflation control as well as meting out support for economic growth. The decisions they take on future rates will be based on evolution of inflation trends and events on the global economic ground.
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