RBI Monetary Policy 2025: MPC cuts repo rate after five years; rate slashed by 25 bps to 6.25%; FY26 GDP growth seen at 6.7%

RBI Governor Sanjay Malhotra, in his address, said that the six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously decided to cut the rate by 25 basis points.

The governor further said that the rate-setting panel unanimously decided to continue with a 'neutral' monetary policy stance.

The RBI last reduced the repo rate by 40 basis points to 4% in May 2020 to help the economy weather the crisis following the outbreak of the COVID-19 pandemic and subsequent lockdown.

However, in May 2022, the central bank started a rate hike cycle because of the Russia-Ukraine war and paused it only in May 2023.

Further, the governor said that the RBI estimates GDP growth in the next fiscal year (FY26) at about 6.7%.

Before announcing the policy, the RBI governor said that the Indian economy remains strong, though it is not immune to global challenges. The governor added, "Economic interest also warrants efficiency in the economy; we recognise this."

As regards inflation, the governor said that the average inflation has remained lower since the introduction of the monetary policy framework, and inflation targeting has served the Indian economy very well.

Food inflation is expected to soften on the back of new crop arrival.

RBI projected inflation for FY'25 at 4.8% and FY'26 at 4.2%.

Post Budget, the Finance Ministry made a case for rate cut by saying that fiscal and monetary policy should work in tandem.

It was an indication that the RBI should cut rate as the Union Budget has announced several measures including income tax relief.

Earlier this week, Finance Secretary Tuhin Kanta Pandey had said the government has taken measures to lower fiscal deficit and delivered a non-inflationary Budget, and hoped that the RBI’s monetary policy will work in tandem with fiscal policy to support growth.

The Budget 2025-26 announced slew of measures including significant income tax cuts for the middle class, benefiting 1 crore tax payers.

RBI Governor Sanjay Malhotra urged banks not to passively park funds with the RBI but actively trade amongst themselves.

The governor also said that the RBI forex policy has remained consistent, in favour of orderly and stable market operation, and does not target any exchange rate.