RBI cut repo rate for the second time by 0.25% to six per cent
Economy
5 min read
The Reserve Bank of India (RBI) has cut its policy repo rate by 25 basis points (0.25%) and reduced the growth rate forecast for India's real gross domestic product (GDP) for the 2025-26 financial year to 6.5 percent from the earlier forecast of 6.7 %.
RBI also announced a change in its monetary policy stance from neutral to accommodative.
The first bi-monthly monetary policy of the RBI for the 2025-26 financial year was announced by the RBI Governor, Sanjay Malhotra, in Mumbai on 9 April 2025.
Accommodative Stance and Cut in Repo Rates
The RBI Governor said that the Monetary Policy Committee (MPC) has changed its stance from neutral to accommodative.
RBI will now either follow a status quo stance or cut its policy rates unless an exceptional situation arises.
Thus, following accommodative monetary policy, it has again cut the policy repo rates under the liquidity adjustment facility (LAF) by 0.25 %.
It is expected to make loans cheaper in the country and boost economic growth in the country.
After five years, the RBI cut its policy repo rate by 0.25 % in February 2025.
The MPC has continued its easy money policy, keeping in mind the uncertain global economic situation triggered by American President Donald Trump's reciprocal tariffs on its trading partners.
The USA has imposed a 26% additional tariff on Indian goods imported by the USA, which has come into effect from 9 April 2025.
Rates and Ratios
The policy repo rate is the main tool of the RBI in liquidity management under its liquidity adjustment facility (LAF).
All the other rates of the RBI- standing deposit facility (SDF) rate, marginal standing facility (MSF) rate, and the Bank Rate are linked to it.
The fixed reverse repo rate is not linked to the policy repo rate.
The new rates effective from 9 April 2025 are as follows
- Policy Repo Rate - 6.00%
- Fixed Reverse Repo Rate- 3.35 % (No change)
- Standing deposit facility (SDF) - 5.75% (earlier 6%)
- Marginal Standing Facility(MSF)- 6.25%(earlier 6.5%)
- Bank Rate - 6.25% (earlier 6.50%)
Reserve Ratios
- Cash Reserve Ratio(CRR)- 4.50% (No change)
- Statutory Liquidity Ratio (SLR)- 18% (No change)
GDP growth forecast for 2025-26
The real GDP growth was 6.5 % in 2024-25 and was 9.2 % in 2023-24.
RBI has forecasted a growth rate of 6.5 % in 2025-26.
RBI forecasts for quarterly growth rate for the financial year 2025-26 as follows.
- Q1 (April to June 2025) at 6.5 percent;
- Q2 (July to September 2025) at 6.7 percent;
- Q3 (October -December 2025 ) at 6.6 percent; and
- Q4 (January-March 2026) at 6.3 percent.
Monetary Policy Committee (MPC)
The Monetary Policy Committee is a statutory body set up by the government of India under the provisions of the Reserve Bank of India Act 1934.
It was established on 29 September 2016.
It sets the policy interest rate of the RBI to achieve the inflation target set by the government of India.
As per the RBI Act, the MPC has to meet at least four times a year.
It has six members - Sanjay Malhotra, RBI Governor, and chairman of the MPC.
Other members are Dr. Nagesh Kumar, Prof. Ram Singh, Saugata Bhattacharya, Dr. Rajiv Ranjan, and M. Rajeshwar Rao.
