The decision was taken unanimously by the six-member Monetary Policy Committee (MPC) during its three-day meeting. It aims to support economic growth while ensuring inflation remains within the target range.
This is the first cut in the repo rate, the rate at which the RBI lends to other banks, since 2020.
The RBI affirmed it would maintain a “neutral” stance, allowing flexibility to respond to changing economic conditions. Governor Malhotra assured the central bank would take calibrated actions to balance price stability, growth, and financial stability.
RBI Governor Sanjay Malhotra announced that inflation has moderated due to favorable food prices and the impact of past monetary measures. CPI inflation for FY 2025-26 is projected at 4.2%, gradually aligning with the RBI’s target.
Despite a slowdown from last year’s 8.2% GDP growth, the Indian economy remains resilient. The RBI projects 6.7% growth for FY 2025-26, driven by strong agriculture, recovering manufacturing, and a growing service sector. However, global uncertainties, volatile markets, and geopolitical tensions pose risks.
India’s foreign exchange reserves exceed $630 billion, covering over 10 months of imports. The current account deficit is manageable, and India remains the largest recipient of global remittances. The RBI reiterated its policy of maintaining market stability without targeting specific exchange rate levels.
Governor Malhotra also announced new measures to enhance financial security and market efficiency. These include two-factor authentication for international payments, exclusive domains for Indian banks to combat fraud, and forward contracts in government securities to manage interest rate risk.
CS Setty, Chairman of SBI shared his opinion said, “The RBI decision to start the easing cycle with a 25-bps cut was timely, contextual and also well communicated with respect to regulatory changes in transition to ensure a seamless and non-disruptive manner. The RBI growth and inflation forecasts for FY26 clearly shows the delicate tradeoff between growth and inflation. The regulatory announcement on forward contract, reviewing trade settling cycle and addressing cyber security in banks and payment systems will ensure better price discovery, more broad basing of participants and ensuring trust in digital banking.”
