RBI MPC Meeting 2025 Highlights: RBI Cuts Repo Rate from 6.5% to 6.25%, Check Reasons & Impact On India’s GDP

Under Governor Sanjay Malhotra, the Reserve Bank of India (RBI) held its first Monetary Policy Committee (MPC) meeting and announced a major policy shift – cutting the repurchase rate 25 basis points (BPS), reducing it from 6.5% to 6.25%. This marks a top-notch reduction in five years, aiming to promote economic activity by making borrowing more affordable. The move is expected to increase liquidity, support credit growth, and stimulate investment and consumption in the economy.

RBI parameters with current value

You are watching: RBI MPC Meeting 2025 Highlights: RBI Cuts Repo Rate from 6.5% to 6.25%, Check Reasons & Impact On India’s GDP

scope	Previous value	Current value
Storage rate	6.5%	6.25%
GDP growth projection (FY26)	–	6.7%
Inflation Projection (FY26)	4.8% (FY25)	4.2%

What are the reasons for cutting the repo rate?

• The decision is aligned with government efforts to promote consumption following the recent personal income tax relief.
• The Reserve Bank of India aims to enhance borrowing and investment, thereby stimulating economic activity.
• Maintain a neutral stance to provide flexibility in response to macroeconomic changes.

What impact will the repo rate have on GDP growth after it drops from 6.5% to 6.25%?

• The GDP growth of FY26 is estimated at 6.7%, an increase from previous estimates.
• Economic surveys for 2025-26 are expected to grow at 6.3%-6.8%, cited:
• Strong external account
• Calibration of financial consolidation
• Stable private consumption
• Current GDP growth in FY25 is estimated at 6.4%, the slowest in four years.

Inflation prospects

• Assuming normal monsoon, the CPI inflation projection of FY26 is set to 4.2%.
• One quarter inflation estimates:
• Question 1: 4.5%
• Question 2: 4.0%
• Question 3: 3.8%
• Question 4: 4.2%
• CPI-based inflation fell to 5.22% in December 2024, mainly due to the decline in food prices.

What are the effects of cutting the repo rate?

• Lower EMI for Borrowers: Banks may lower loan rates related to marginal costs of external benchmark loan rates (EBLR) and fund-based loan rates (MCLR).
• Promoting investment: Businesses may find it easier to expand and capital expenditure funds.
• Potential risks: While the policy is designed to support growth, external factors such as global trade tensions and economic uncertainty may affect the outcome.

Also Read | Setting up a new income tax bill approved by the Cabinet: What key changes do you need to know?

What will be the global economic environment after the repurchase rate is reduced?

• In the context of global uncertainty, the decision proposes:
• U.S. tariffs on Canada, Mexico and China
• Strengthening the US dollar, leading to capital outflows in emerging markets
• Differences in monetary policies in developed economies
• The RBI governor stressed that volatility in financial markets and geopolitical tensions are ongoing concerns.

Governor’s statement on economic resilience

RBI Governor Sanjay Malhotra reiterated:

• Committed to negotiating regulatory approaches.
• Ensure the smooth implementation of policy changes.
• Use all available tools to deal with the global headwinds that affect India’s economy.

Highlights of the meeting

1. Impact on borrowers

• Cutting the buyback rate will reduce loan EMI, thus benefiting home buyers and businesses.
• The move is in line with fiscal stimulus measures announced by the government in its 2025 budget.

2. Economic growth and inflation

• The Reserve Bank of India’s GDP growth forecast for fiscal 2025-26 is 6.7%.
• Inflation is expected to be 4.2%, with a balanced risk.
• Growth indicators show that rural demand is strengthening, while urban consumption is still mixed.

3. Financial market response

• Stock markets responded positively and continued to recover from recent losses.
• Market analysts believe that lowering the buyback rate will increase investor confidence and liquidity.
• Experts predict that stocks have limited room for upside because lowering tax rates have been priced.

Departmental impact

1. Real estate and housing

• Lower interest rates will increase housing affordability and promote real estate investment.
• Infrastructure projects will enhance liquidity and investor confidence.

2. Banking and financial services

• As digital banking expands, banks must strengthen their cybersecurity framework.
• Floating rate loans will immediately reflect lower interest rates, thereby easing borrowers’ financial pressure.

3. Consumers and investment sentiment

• Reduce interest rates to stimulate consumer demand.
• Business confidence is expected to improve, encouraging fixed investments.

GDP Growth Forecast (FY2025-26)

One quarter	Expected growth
Q1	6.7%
Q2	7.0%
Q3	6.5%
Q4	6.5%

Neutral position on future policies

• The Reserve Bank of India maintains a neutral stance to ensure flexibility in future policy actions.
• Monetary policy will be reassessed every two months based on economic conditions.

in conclusion

The Reserve Bank of India decided to lower the buyback rate to 6.25%, while maintaining inflation. The move is expected to reduce borrowing costs, increase investment and support economic stability. However, global uncertainty and inflation risks remain major challenges in the future.

Source: https://dinhtienhoang.edu.vn
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