In a move that could mark a turning point in India’s monetary cycle, RBI Governor Sanjay Malhotra today announced that the Monetary Policy Committee (MPC) has cut the benchmark repo rate by 25 basis points, bringing it down from 6.25% to 6%.
This is the first rate cut in over a year and comes amid signs of cooling inflation and slowing economic momentum.
🧮 First, What Is the Repo Rate?
The repo rate is the interest rate at which the Reserve Bank of India lends short-term funds to commercial banks.
When the repo rate goes down:
- Borrowing becomes cheaper for banks.
- Banks, in turn, lower loan interest rates for consumers and businesses.
- It boosts credit growth, consumer spending, and investment.
- It can also, over time, stimulate GDP growth.
🔍 Why Has RBI Cut Rates Now?
The decision appears to be preemptive and strategic. Here’s what likely influenced the MPC:
- Cooling Inflation
- Retail inflation has been steadily easing, hovering near the RBI’s comfort zone of 4-5%.
- With food inflation softening and crude oil prices stabilizing, the inflationary threat seems contained—for now.
- Slowdown in Consumer Demand
- Recent indicators show a dip in rural consumption and lower-than-expected growth in industrial production.
- Need to Support Growth
- The government is pushing for a stronger second-half recovery in FY2025–26.
- The RBI wants to inject some momentum through monetary easing.
💬 Governor Malhotra’s Remarks
In the press briefing, Sanjay Malhotra stated:
“The Committee judged that the balance of risks to growth and inflation has shifted. A calibrated reduction in the policy rate will support durable growth without jeopardizing price stability.”
He also emphasized that the RBI would remain data-dependent, and future cuts would be “measured and prudent.”
📊 Market Reaction
- Sensex and Nifty jumped shortly after the announcement, led by rate-sensitive sectors like banking, real estate, and auto.
- Bond yields dropped sharply, with the 10-year benchmark yield dipping below 6.85%.
- Rupee held firm against the dollar, buoyed by strong foreign investor inflows.
🏠 What It Means for You
✅ If You’re a Borrower:
- Expect lower home loan, car loan, and personal loan interest rates soon.
- EMIs may come down, especially for loans linked to external benchmarks.
✅ If You’re a Business Owner:
- Cheaper credit could make it easier to invest in expansion, inventory, or hiring.
- Small and medium enterprises (SMEs) may benefit most.
⚠️ If You’re a Saver:
- Banks may cut fixed deposit (FD) rates in the coming weeks.
- Time to review where you park your savings.
🔮 What’s Next?
This rate cut could be the beginning of a new easing cycle, though much depends on how inflation behaves and how global risks (like the US Fed stance or oil prices) evolve.
Markets will now be watching the June policy meeting closely for signs of another cut—or a pause.
🧠 Quick Tip: If you’re planning to take a loan, this could be the sweet spot to lock in lower rates before banks adjust upward again, depending on global volatility.
