RBI MPC 2025: Repo rate cut by 25 bps to 6.25% announced; check impact on inflation, loans, markets and more

The Reserve Bank of India (RBI) has announced a repo rate cut of 25 basis points (bps) to 6.25% from 6.5% earlier, aligning with the widespread expectations. The rate cut comes after five years, as it was last changed in May 2020.

RBI’s newly-appointed governor Sanjay Malhotra on Friday said in his address 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 MPC meeting started on Wednesday, February 5.

The repo rate cut increases the money supply in the economy and fuels consumer demand by making borrowing cheaper. The cut in the repo rate is expected to provide stimulation to the Indian economy by making borrowing affordable and boosting consumption.

Here is a list of things that are expected to be impacted by the RBI repo rate:

• Loans: A repo rate cut has the biggest direct impact on loans. A lower repo rate means that the RBI will lend money to banks at a lower rate, which then would allow banks to lower the interest rates from borrowers, resulting in cheaper loans. This makes many big purchases for average citizens like cars, houses and education, among other things, cheaper.

• Inflation: A reduction of the repo rate can fuel inflation. With a repo rate cut, borrowing becomes cheaper, and demand for consumer goods increases, which can lead to higher inflation rates. With the rupee falling to record lows, the rate cut can spark a rise in domestic inflation.

• Consumer spending: A lower repo rate, as mentioned above, makes big purchases affordable for individuals, leading to increased consumer spending. This can increase the overall spending in the country’s economy.

• Markets: Repo rate cuts usually have a positive impact on stock markets. With cheaper borrowing, businesses can invest more easily and focus on expansion for higher profits. Investors see this as an opportunity to get higher returns, which can lead to a stock market rally.

• Currency exchange rate: A repo rate cut by the RBI could result in a weaker rupee against other currencies, along with higher inflation.