RBI Monetary Policy 2025 – MPC cuts repo rate by 25 basis points

1. Repo Rate Cut: On April 9, 2025, the Reserve Bank of India (RBI) reduced the repo rate by 25 basis points to 6%, marking the second consecutive cut after February 2025.
2. Policy Stance Shift: The Monetary Policy Committee (MPC) changed its stance from "neutral" to "accommodative," signaling potential future rate cuts to boost economic growth.
3. Economic Context: The decision was influenced by global trade uncertainties, particularly US tariffs under President Donald Trump, posing risks to India’s growth and exports.
4. GDP Growth Forecast: RBI revised the GDP growth projection for 2025-26 to 6.5% (down from 6.7%), reflecting concerns over global economic slowdown.
5. Inflation Outlook: Inflation for 2025-26 is projected at 4%, with quarterly estimates ranging from 3.6% to 4.4%, assuming a normal monsoon.
6. Global Trade Impact: Governor Sanjay Malhotra highlighted that tariff-related measures could dampen merchandise exports, though services exports remain resilient.
7. Liquidity Measures: System liquidity moved from a deficit in January 2025 to a surplus by March, aided by RBI’s injection of Rs 6.9 lakh crore.
8. Growth vs. Inflation: Malhotra emphasized that uncertainty affects investment and spending, necessitating a supportive monetary policy to stimulate the economy.
9. Sectoral Implications: Lower borrowing costs are expected to benefit MSMEs, contributing 30% to GDP and 40% to exports, by easing credit access.
10. Future Policy Hint: The accommodative stance suggests a possible rate cut in June 2025, absent major economic shocks, to sustain growth momentum.

Glossary

• Repo Rate: The rate at which RBI lends to commercial banks, influencing overall interest rates in the economy.
• Monetary Policy Committee (MPC): A six-member body, chaired by the RBI Governor, responsible for setting interest rates.
• Accommodative Stance: A policy approach favoring lower interest rates to encourage borrowing and economic activity.
• GDP Growth: The annual percentage increase in the value of goods and services produced in an economy.
• Inflation: The rate at which the general level of prices for goods and services rises, eroding purchasing power.
• Liquidity: The availability of liquid assets (cash) in the financial system to facilitate transactions.
• MSMEs: Micro, Small, and Medium Enterprises, key drivers of employment and economic output in India.
• Tariffs: Taxes imposed on imported goods, affecting trade and economic growth.
• Basis Points (bps): One hundredth of a percentage point (e.g., 25 bps = 0.25%).
• RBI Governor: The head of the Reserve Bank of India, currently Sanjay Malhotra, appointed in December 2024.

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