The Reserve Bank of India (RBI) on Wednesday reduced the major interest rate repo rate by 0.25 percent to 6 percent for the second consecutive time to strengthen the economy. RBI Governor Sanjay Malhotra said, “The 6 -member monetary policy committee has taken this decision unanimously to reduce prices.” Let us tell you that three members of the Monetary Policy Committee are from the central bank, while three members are from outside.
Malhotra said that the RBI has changed its policy stance from ‘neutral’ to ‘adjust’. This means that if required, the RBI can further cut the policy rate in the future.
What is the repo rate? Understand
Repo is the interest rate on which commercial banks borrow from the central bank to meet their immediate needs. RBI uses this rate to control inflation. Reduction in repo rates means that EMI is expected to decrease on various loans including home and vehicle loans.
Decision after Trump increased tariff
RBI has cut the policy rate after an additional fee of 26 percent on Indian products exported to the US. American tariffs have increased uncertainties and some economists have estimated a decline of 0.2 to 0.4 percent in gross domestic product growth in the current financial year starting from 1 April.
Economic growth forecast
Due to this, RBI reduced the economic growth estimate for FY 2025-26 from 6.7 percent to 6.5 percent. Apart from this, inflation estimate has also been reduced from 4.2 percent to 4 percent. Due to this, the estimate of retail inflation has been in line with the RBI target.
The repo rate was also cut in February.
In February this year, in the monetary policy review, the RBI reduced the repo rate from 0.25 percent to 6.25 percent. This was the first cut after May 2020 and the first improvement after two and a half years.
