Mumbai: In a move aimed at giving the economy a fresh boost, the Reserve Bank of India on Friday lowered the repo rate by 25 basis points, bringing it down from 5.5% to 5.25%. RBI Governor Sanjay Malhotra announced the cut following the conclusion of the three-day Monetary Policy Committee (MPC) meeting, where members voted unanimously in favour of easing the policy rate.
The repo rate—India’s benchmark lending rate used by the RBI to infuse liquidity into the banking system—has now been reduced for the second time this financial year. The MPC had previously trimmed the rate in June, bringing it down from 6% to 5.5% to counter slowing inflation.
Balancing inflation with currency pressures
Governor Malhotra noted that the latest rate decision was driven largely by the continued decline in inflation, which has been hovering near record lows for several weeks. “With price pressures easing and demand showing signs of fatigue, the committee felt there was room to support growth without compromising macroeconomic stability,” he said.
However, the rate cut comes at a time when the rupee has been under strain, touching its weakest level just a day before the policy announcement. The MPC acknowledged the currency volatility but maintained that inflation concerns currently outweigh the risks associated with a softening rupee.
What this means for borrowers
The RBI’s move is expected to trickle down to consumers in the form of lower EMIs on home, vehicle and personal loans as banks adjust their lending rates in accordance with the policy change. Borrowers with floating-rate loans, in particular, stand to benefit as banks pass on the reduction over the coming weeks.
Financial analysts say the cut could help revive consumer spending and spur credit growth at a time when demand remains uneven across sectors.
Policy direction remains growth-focused
The MPC, which meets every two months to chart the country’s monetary strategy, reiterated its commitment to supporting economic recovery while keeping inflation within the target band. With two consecutive cuts in the current cycle, the committee appears to be signalling a more accommodative stance as global economic uncertainties persist.
The RBI will release its revised growth outlook and inflation forecast later this month, offering deeper insight into the trajectory of interest rates for the remainder of the year.
For now, consumers and industry alike are likely to welcome the rate reduction—one that promises a little more breathing room at a time when households and businesses are navigating tight financial conditions.
