RBI lowers repo rate to boost growth.
RBI Governor stated that the Monetary Policy Committee (MPC) has unanimously decided to maintain a neutral stance regarding monetary policy. This decision aims to balance economic growth with inflation control, ensuring financial stability. The committee carefully evaluated prevailing macroeconomic conditions before reaching this conclusion. By maintaining a neutral stance, the RBI retains flexibility to respond to future economic developments as needed. The decision aligns with the broader goal of sustaining economic expansion while keeping inflation within the target range. Market participants and analysts are closely monitoring the central bank’s approach, as it plays a crucial role in shaping the economic outlook and influencing key financial indicators, including interest rates and liquidity conditions.
RBI Cuts Repo Rate to Spur Growth, Maintains Neutral Stance
Mumbai: The Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) on Friday decided to cut the repo rate by 25 basis points, bringing it down to 6.25 percent. This move is aimed at boosting economic growth while keeping inflation under control.
RBI’s Policy Stance and Inflation Outlook
RBI Governor Sanjay Malhotra announced that the MPC has unanimously decided to maintain a neutral stance on monetary policy. He emphasized that the committee will continue focusing on inflation while supporting growth, ensuring flexibility to respond to changes in the macroeconomic environment.
Malhotra noted that inflation has been declining and is expected to moderate further, gradually aligning with the RBI’s target. Keeping inflation under control remains a key priority, as it directly impacts consumer spending, business investments, and overall economic stability.
Liquidity and Currency Stability Measures
The RBI Governor assured that the central bank is committed to ensuring sufficient liquidity in the economy. He stated that necessary steps would be taken to maintain durable liquidity to meet the system’s requirements. Addressing concerns about the stability of the Indian rupee, Malhotra confirmed that the RBI is closely monitoring exchange rate movements and taking all necessary measures to keep the currency stable amid global economic uncertainties.
The governor also highlighted positive trends in the economy, including signs of increasing growth momentum and a revival in rural demand. These factors are expected to contribute to economic expansion in the coming months.
Global Challenges and Market Volatility
While the domestic economic outlook appears promising, Malhotra cautioned that uncertainties in global trade and financial markets remain potential risks to growth. Climate change, fluctuating commodity prices, and geopolitical tensions could pose additional challenges. He stressed the need for the MPC to stay vigilant and adapt its policies accordingly to safeguard India’s economic interests.
Alignment with Budget 2025-26
The RBI’s monetary policy decision follows closely on the heels of the Union Budget 2025-26. The finance minister has chosen to adhere to the fiscal consolidation path, reducing the fiscal deficit target to 4.4 percent of GDP for 2025-26 from the earlier 4.8 percent. This move has reduced the government’s borrowing requirements, creating more room for the RBI to adopt a soft monetary policy stance.
Malhotra, a former finance ministry official, has already announced the injection of Rs 1.5 lakh crore into the banking system to address liquidity concerns in the financial sector. This measure is expected to improve credit availability, facilitating business expansion and consumer spending.
Impact on Borrowing and Economic Growth
The government has lowered its estimated net market borrowings for the 2025-26 financial year to Rs 11.54 lakh crore. This decision will leave more funds in the banking system, enabling banks to extend more loans to corporates for investment. It is also likely to encourage consumer spending, further stimulating economic growth.
Senior officials have indicated that both the fiscal measures announced in the budget and the RBI’s monetary policy are aligned to accelerate economic growth while maintaining price stability. The combination of reduced government borrowing, increased liquidity, and lower interest rates is expected to create a more favorable environment for businesses and consumers alike.
Boost for the Middle Class and Consumer Spending
A major highlight of the Union Budget was the significant income tax relief for the middle class. As per the new tax structure, nearly 1 crore individuals earning up to Rs 12.75 lakh annually will not have to pay any income tax. This move is expected to increase disposable income, allowing people to spend more on goods and services.
Higher consumer spending will drive demand across various sectors, contributing to overall economic growth. Industries such as retail, real estate, and automobiles are likely to benefit from this increased purchasing power. The resulting rise in aggregate demand will, in turn, boost production and job creation.
Conclusion
The RBI’s decision to cut the repo rate to 6.25 percent marks a significant step in supporting economic growth while keeping inflation in check. By maintaining a neutral stance, the central bank retains flexibility to respond to evolving economic conditions. With liquidity measures in place and fiscal policies aligned, the government and RBI are working together to ensure sustainable growth in the Indian economy.
While global uncertainties remain a challenge, the overall outlook appears positive, with improving economic momentum, a revival in rural demand, and increased consumer spending. As both monetary and fiscal policies converge towards stability and growth, India’s economic trajectory is set to strengthen in the coming months.