FILE PHOTO: Reserve Bank of India (RBI) logo is seen inside its headquarters in Mumbai, India, April 6, 2023. REUTERS/Francis Mascarenhas//File Photo/File Photo
| Photo Credit:
FRANCIS MASCARENHAS

The rate-setting six-member monetary policy committee (MPC) on Wednesday voted unanimously to cut the policy repo rate by 25 basis points (bps) from 6.25 per cent to 6 per cent to support growth, which could face headwinds from the ongoing global tariff war.

This comes in the backdrop of the latest retail inflation reading coming in below the 4 per cent target.

Governor Sanjay Malhotra observed that there is greater confidence about alignment of retail inflation with the 4 per cent target over 12 months.

Along with the rate cut, the MPC also voted unanimously to change the monetary policy stance from “neutral” to “accommodative”.

The MPC had cut the repo rate (the interest rate at which Banks draw funds from RBI to overcome short-term liquidity mismatches) at its last meeting in February too by 25 bps from 6.50 per cent to 6.25 per cent.

The latest repo rate cut comes in the backdrop of the headline CPI (consumer price index-based) or retail inflation moderating to a seven-month low and GDP growth picking up.

Retail inflation declined to 3.6 per cent in February 2025 from 4.3 per cent in January 2025 as food prices, especially vegetables, recorded a sharp decline driven by the arrival of winter crops in the market.

Real Gross Domestic Product (GDP) picked up pace in the third quarter (October-December 2024), growing 6.2% against 5.6% in the previous quarter.

State Bank of India’s economic research department expects a cumulative policy rate reduction of 75-100 basis points by March 2026, factoring in the average inflation envisaged and the output gap consequent upon different GDP scenarios.

Published on April 9, 2025