The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has cut the repo rate by 25 basis points to 6% in April 2025, amidst global economic uncertainty caused by escalating trade wars and tariff tensions. 

Key Highlights of the MPC Meeting

• Second Consecutive Rate Cut: The MPC unanimously decided to reduce the repo rate by 0.25%, marking the second successive rate cut this year. This move aims to boost economic growth in an environment of weakening global trade.
• Shift in Monetary Policy Stance: The policy stance was changed from ‘neutral’ to ‘accommodative’, indicating the possibility of further rate cuts in the future. The accommodative stance focuses on supporting growth rather than curbing inflation.
• Revised Growth Forecast: The GDP growth forecast for FY2026 has also been trimmed from 6.7% to 6.5% , highlighting that global trade frictions and uncertainties will continue to affect investment, consumption, and exports.
• Inflation Outlook: Despite global risks, the RBI expects inflation to remain under control. Consumer Price Index (CPI) inflation for FY2026 is now forecasted at 4%, supported by softening commodity and crude oil prices.

About the Repo Rate

• The repo rate is the interest rate at which the RBI lends short-term money to commercial banks. Lowering the repo rate makes borrowing cheaper, thereby encouraging spending and investment.
• Current Repo Rate; Following the latest MPC decision, the repo rate now stands at 6%, while the Standing Deposit Facility (SDF) is adjusted to 5.75%, and the Marginal Standing Facility (MSF) rate and Bank Rate to 6.25%.

Reasons Behind the Reduction in Repo Rate

• Global Trade Tensions: Rising trade tensions, including the US administration’s 26% reciprocal tariffs on Indian goods, have increased global economic uncertainty, adversely impacting Indian exports and growth.
• Priority on Supporting Growth: The MPC emphasized that the domestic economy needs continued support due to a fragile recovery and external shocks, despite inflation remaining within the target range.
• Improved Inflation Situation: A decisive improvement in the inflation outlook, driven by falling food and fuel prices, has provided the RBI with the flexibility to focus more aggressively on stimulating growth without risking price stability.

Impact of the Repo Rate Cut on the Market

• Borrowing Becomes Cheaper: Home loans, auto loans, and other borrowings are expected to become more affordable as banks pass on the benefits of lower repo rates to consumers.
• Savings Yield May Decline: While borrowers will benefit, depositors may earn lower interest on savings and fixed deposits, as banks are likely to cut deposit rates.
• Boost to Economic Activity: Lower interest rates are expected to encourage higher consumer spending, increase business investments, and support overall economic momentum in a challenging global environment.

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