RBI reduces the repo rate by 0.25% marking the first cut in almost five years.

New Delhi, Feb 7 ,2025: In a move aimed at providing relief to borrowers, the Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) on Friday lowered the policy repo rate by 0.25% to 6.25%, citing easing inflationary pressures. This marks the central bank’s first rate cut in almost five years, raising expectations of reduced loan EMIs.

“After a comprehensive review of macroeconomic conditions, financial developments, and economic projections, the MPC unanimously decided to lower the policy repo rate by 25 basis points, from 6.5% to 6.25%,” announced RBI Governor Sanjay Malhotra in his debut monetary policy statement.

The MPC also reaffirmed its neutral stance, emphasizing its commitment to ensuring inflation remains sustainably aligned with the target while fostering economic growth.

Explaining the rationale behind the decision, the RBI Governor highlighted that inflation has been on a downward trajectory, aided by a favorable food price outlook and the ongoing impact of previous monetary policy measures.

“It is anticipated to ease further in 2025-26, gradually moving in line with the inflation target. The committee also observed that while economic growth is expected to recover from its Q2FY25 low, it remains significantly below last year’s figure of 8.2%,” Malhotra stated.

Retail inflation, as measured by the Consumer Price Index (CPI), moderated from 5.4% in FY24 to 4.9% in the April-December 2024 period. Although the overall inflation trend in FY25 has been downward, volatility in food prices and select commodities has occasionally pushed CPI inflation toward the upper range of the RBI’s tolerance band of 4% (+/- 2%).