Monetary Policy Statement by Shri Sanjay Malhotra, RBI Governor

The Reserve Bank of India (RBI) has cut the interest rate by 0.25% to 6.25%. This is the first time in five years that the RBI has reduced the interest rate.

This was unanimously made by the RBI’s six-member Monetary Policy Committee (MPC) on Friday, marking the first change in the repo rate in two years.

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The repo rate is the interest rate at which the RBI lends money to other banks. When the RBI reduces the repo rate, it makes borrowing cheaper for people and businesses.

The repo rate, previously at 6.5%, has been reduced to boost consumption and investment, coming just a week after the Centre cut personal income tax.

RBI Governor Sanjay Malhotra cited that inflation is aligning with targets amid concerns over economic growth and signs of inflation nearing 4%.

Monetary Policy Statement by Shri Sanjay Malhotra, RBI Governor- February 07, 2025, 10 am https://t.co/mkTluoMAZX

— ReserveBankOfIndia (@RBI) February 7, 2025

The RBI has estimated that India’s GDP growth will be around 6.7% in the next fiscal year. The government had earlier projected a growth rate of 6.3-6.8% for 2025-26.

Sanjay Malhotra also stated that inflation has been under control since the new monetary policy framework was introduced. He added that India’s economy is doing well, but it’s not protected from global problems.

When the RBI reduces the repo rate, all external benchmark lending rates (EBLR) linked to the repo rate will come down.

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This means that your Equated Monthly Instalments (EMIs) will decrease, giving you relief if you have taken a loan. Home loan borrowers, in particular, are likely to benefit from this move.

Recently, US President Donald Trump announced tariffs on Canada, Mexico, and China, which has caused concern about global trade wars.

Although the tariffs on Canada and Mexico have been delayed for a month, they’ve already led to a rise in the value of the US dollar against other major currencies.

As a result, the Indian rupee hit an all-time low, falling below the 87-level. However, it has since recovered slightly, gaining 16 paise to reach 87.43 against the US dollar on Friday.