On Friday, February 7, the Reserve Bank of India decided to use its scissors, now rusty, to cut the repo rate or the country’s interest rate, by 25 basis points, bringing it down to 6.25 per cent, compared to its previous 6.50 per cent. The interest rates had remained the same for nearly 2 years. This rate cut comes for the first time in 5 years.
The last time, the interest rate was cut, was in March 2020, when the benchmark rate was brought down by 75 basis points to 4.40 per cent.
This was the new RBI Governor, Sanjay Malhotra, a former revenue department bureaucrat’s first MPC meeting, after succeeding Shaktikanta Das.
Monetary Policy Statement by Shri Sanjay Malhotra, RBI Governor- February 07, 2025, 10 am https://t.co/mkTluoMAZX
— ReserveBankOfIndia (@RBI) February 7, 2025
This was announced by the government’s banker after a 3-day Monetary Policy Committee meeting that concluded on February 7.
The RBI Governor started his post-MPC speech with a great emphasis on maintaining price stability, along with maintaining and aiding growth.
Sanjay Malhotra focused extensively on the pertinence of maintaining price stability.
RBI Slashes Repo Rate
The governor started his address after the 53rd MPC meeting by remarking on the 8 years of the flexible inflation targeting framework.
This framework introduced in 2016, according to the governor, has assisted in bringing about stability in the economy, especially during the pandemic years.
The RBI has retained its GDP projection for the next FY to 6.7 per cent.
Why Has The Rate Been Retained?
This decision to retain the interest rate or repo rate comes at the back of major developments in the previous weeks.
The Union budget took a consumption-first approach, aiding taxpayers, and increasing the purchasing power of regular citizens.
The rate of inflation, after a sudden spike in mid-2024, has tapered down. However, it still remains above the RBI threshold of 4 per cent.
It also needs to be noted that India, which was once touted as one of the fastest-growing economy, has seen its rate of growth reduce in the previous quarter. The GDP data for Q3 is expected to be released on Februray 28.
The MPC Meeting
The MPC came to this decision unanimously. The rate has been brought down to at 6.25 per cent since February 2023.
The MSF or Marginal Standing facility, remained at 6.50 per cent. The SDF, or Standing Deposit Facility remained at 6.00 per cent.
This MPC meeting started on February 5 and concluded on February 7. These MPC meetings, under the leadership of the RBI governor (currently Sanjay Malhotra), ruminate and decide upon the monetary policies for the country every two months.
