RBI MPC Meet: Central Bank slashes repo rate by 25 basis points to 6%
On inflation, the Reserve Bank has said that food inflation dropped to a 21-month low of 3.8 per cent in February backed by a strong seasonal correction in vegetable prices.
The Reserve Bank of India's Monetary Policy Committee unanimously announced today that the policy repo rate would be lowered by 25 basis points to 6 percent, cutting policy rates for the second consecutive time. As a result, the marginal standing facility rate (MSF rate) and the bank rate will be raised to 6.25%, while the standing deposit facility rate (SDF rate) under the liquidity adjustment facility will remain at 5.75 percent. The MPC reduced the repo rate by 25 basis points in February of this year. It was the first revision in two and a half years and the first cut since May 2020.
On inflation, the Reserve Bank has said that food inflation dropped to a 21-month low of 3.8 per cent in February backed by a strong seasonal correction in vegetable prices. Core inflation, however, inched up to 4.1 per cent in February 2025, driven primarily by a sharp pick-up in gold prices. Noting that fall in crude oil prices augurs well for the inflation outlook, the RBI has projected CPI inflation at 4 percent for 2025-2,6, considering the upside risks due to adverse weather-related events, supply and lingering global market uncertainties.
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Moreover, the MPC has changed its stance from neutral to accommodative as the rapidly evolving situation requires continuous monitoring and assessment of the economic outlook. Going forward, the Governor said that in the absence of any future shocks, the MPC is considering only two options – status quo or a rate cut. He also clarified that the stance should not be directly associated with liquidity conditions.
Regarding the global tariff situation and its impact on growth, the governor of the Reserve Bank of India stated that uncertainty in and of itself slows growth by influencing the investment and spending choices made by households and businesses.
He claimed that while higher tariffs would hurt net exports, the slowdown in global growth brought on by trade frictions would hinder growth at home. However, Mr. Malhotra stated that it is challenging to quantify the negative impact when taking into account the influence of relative tariffs, the elasticity of demand for India's imports and exports, and the government's adopted policy measures, such as the proposed Foreign Trade Agreement with the United States.
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The next meeting of the MPC is scheduled from 4th to 6th June 2025.
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