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RBI MPC Meeting February 2025: RBI Cuts Repo Rate to 6.25%, First Reduction in 5 Years; Projects 6.7% GDP Growth for FY26

The Reserve Bank of India (RBI) has cut the repo rate by 25 basis points to 6.25%, marking its first rate cut in five years. The decision, announced during the Friday Monetary Policy Committee (MPC) meeting, comes after maintaining a steady rate for two years, with the last reduction in May 2020.

The move follows the government’s recent personal income tax cuts to boost consumption and economic activity. The repo rate, which stood at 6.5%, has now been reduced to encourage cheaper borrowing, higher spending, and increased investments in the economy.

Why Did RBI Cut the Repo Rate?

Announcing the decision, RBI Governor Sanjay Malhotra emphasized that the monetary policy framework has successfully guided the Indian economy through challenges, including the pandemic. He highlighted that inflation has remained largely within target, except for occasional spikes.

Malhotra assured that the RBI and MPC will continue adapting their policies to balance economic growth and inflation control. He also stated that the central bank will refine its forecasting models and leverage new data for better macroeconomic decision-making.

Economic Outlook: GDP & Inflation Projections

🔹 GDP Growth: The RBI forecasts India’s FY26 GDP growth at 6.7%, in line with the Economic Survey’s estimate of 6.3-6.8%.
🔹 Inflation: Retail inflation is expected to ease to 4.2% in FY26, while CPI inflation for FY25 is projected at 4.8%.

This announcement comes amid global economic uncertainties, including US President Donald Trump’s new tariffs on Canada, Mexico, and China, raising concerns about potential trade wars and their impact on global markets.

What Does a Repo Rate Cut Mean for You?

📉 Lower EMIs: Home, auto, and personal loan EMIs are set to decrease, benefiting borrowers with loans linked to external benchmark lending rates (EBLR).
💰 Cheaper Loans: Lenders may reduce interest rates on loans under the MCLR system, where the full impact of previous repo rate hikes hasn’t been passed on yet.
📈 Boost to Economy: The cut is expected to stimulate credit demand, leading to increased spending and economic growth.

With the first rate cut in five years, the RBI has signaled a shift towards pro-growth policies, providing relief to businesses and individuals while keeping inflation in check.