RBI's Bi-Monthly Monetary Policy Announcement

Repo Rate Cut

• The Reserve Bank of India (RBI) reduced the repo rate by 25 basis points to 6%.
• Objective: Support growth and reduce interest burden on loans.
• Impact on Depositors: Decrease in interest earned on savings.

Global Context

• Decision influenced by a global trade war initiated by U.S. tariffs.

Implications for India

• GDP growth forecast for the year lowered from 6.7% to 6.5%.
• Second consecutive 25 bps repo rate cut by the Monetary Policy Committee (MPC).
• Policy stance shifted from neutral to accommodative.

Economic Concerns

Governor Sanjay Malhotra highlighted several concerns:

• Uncertainty affects investment and spending decisions.
• Trade friction could impede domestic growth.
• High tariffs negatively impact exports.

Two-sided Inflation Risks

• Upside: Uncertainties may lead to currency pressures and imported inflation.
• Downside: Global growth slowdown could lower commodity and crude oil prices, putting downward pressure on inflation.

Economic Projections

• Real GDP growth for 2025-26 projected at 6.5%.
• CPI inflation for 2025-26 projected at 4%.

Monetary Policy Role

Monetary policy aims to ensure non-inflationary growth with improved demand, supply response, and macroeconomic balance.

Liquidity Adjustment

• Standing Deposit Facility (SDF) under the liquidity adjustment facility (LAF) adjusted to 5.75%.
• Marginal Standing Facility (MSF) rate and Bank Rate at 6.25%.