The Reserve Bank of India (RBI) has announced a 25 basis point reduction in the repo rate, bringing it down to 6 per cent.
The move, declared by RBI Governor Sanjay Malhotra on Wednesday, marks the second rate cut this year. The central bank had previously lowered the rate to 6.25 per cent in February, its first cut in nearly five years.
Accompanying this adjustment, the standing deposit facility (SDF) rate has been reduced to 5.75 per cent, while the marginal standing facility (MSF) rate has been lowered to 6.25 per cent.
The RBI's Monetary Policy Committee (MPC) reached the decision unanimously and adopted an 'accommodative' policy stance.
An accommodative stance implies that the central bank is leaning towards supporting economic growth by maintaining or reducing interest rates, especially when inflation is within acceptable limits.
This contrasts with a tightening or ‘withdrawal of accommodation’ approach, which is generally aimed at containing inflation through higher interest rates.
Inflation Under Control Prompts Policy Shift
India's retail inflation stood at 3.61 per cent in February 2025—comfortably below the RBI's medium-term target of 4 per cent. With inflation now seen as manageable, the RBI has turned its attention to encouraging economic growth.
The move also comes amid global uncertainty, particularly due to the United States recently imposing a 26 per cent tariff on Indian imports, creating concerns for India’s export-driven sectors.
Understanding the Repo Rate
The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks in exchange for government securities. A cut in this rate reduces the borrowing cost for banks, which in turn can pass on the benefit to customers and businesses through lower lending rates.
This reduction aims to spur investment, boost infrastructure spending, and increase consumer demand, thereby aiding overall economic growth.
GDP Forecast Revised Downwards
The RBI has revised its GDP growth forecast for the financial year 2025–26 (FY26) from 6.7 per cent to 6.5 per cent. Quarter-wise estimates are as follows:
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Q1: 6.5 pc (down from 6.7 pc)
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Q2: 6.7 pc (down from 7.0 pc)
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Q3: 6.6 pc (up from 6.5 pc)
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Q4: 6.3 pc (down from 6.5 pc)
Governor Malhotra attributed this downward revision to continued uncertainties in global trade, fluctuating policy environments, and geopolitical tensions.
Inflation Outlook and Food Prices
Retail inflation eased to a seven-month low in February 2025. The RBI now forecasts CPI inflation for FY26 at 4 per cent, a slight downgrade from its earlier projection of 4.2 per cent. The quarter-wise projections are as follows:
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Q1: 3.6 pc (down from 4.5 pc)
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Q2: 3.9 pc (down from 4.0 pc)
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Q3: 3.8 pc (unchanged)
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Q4: 4.4 pc (up from 4.2 pc)
Governor Malhotra highlighted a positive shift in food inflation outlook.
The concerns regarding rabi crops have eased significantly. The second advance estimates have shown record wheat production and a strong performance in key pulses, bolstered by good kharif arrivals. This is expected to provide stability in food prices in the months ahead.
However, Malhotra warned that global uncertainties and climate-related supply disruptions could still pose risks to the inflation trajectory.
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