RBI cuts rate by 25 bps; home, other loans to become cheaper

FOR FIRST TIME IN 5 YEARS

- OUR CORRESPONDENT

The Reserve Bank of India, under new Governor Sanjay Malhotra, has reduced the repo rate by 25 basis points to 6.25 per cent, marking the first rate cut since May 2020. The Monetary Policy Committee's decision aims to stimulate the sluggish economy.

This rate reduction is likely to lead to lower interest rates for home, auto, and other types of loans. It represents the first significant policy rate revision in two-and-a-half years, signalling a potential shift in the central bank's monetary strategy.

Malhotra, a career bureaucrat who replaced Shaktikanta Das barely days after the last bi-monthly MPC meeting in December, said the Indian economy will grow at 6.7 per cent in the fiscal starting April 2025 while inflation rate to be lower at 4.2 per cent.

The growth-inflation dynamics "opens up policy space for the MPC to support growth" he said, adding that the RBI will "remain unambiguously focused on a durable alignment of inflation with the target while supporting growth."

For the financial year ending March 31, the Reserve Bank quoted the government estimate to put the growth rate at 6.4 per cent, its worst in four years and lower than 6.6 per cent seen previously, while the inflation was pegged at 4.8 per cent.

While his predecessor held rates in waiting for inflation to drop to the 4 per cent level, the RBI under Malhotra tilted towards supporting growth in the inflation-growth trade-off.