RBI ends rate cut wait; Malhotra stresses 'less restrictive' policy

First repo cut in 5 yrs, of 25 bps to 6.25%, set to ease home loan rates; MPC keeps 'neutral' stance

- MANOJIT SAHA

Interest rates are set to fall after the six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided to reduce the policy repo rate by 25 basis points to 6.25 per cent, against the backdrop of easing inflation and slowing economic growth.

This marks the first interest rate reduction by the central bank in almost five years and will lead to lower loan rates and deposit rates, though with a lag.

All six members voted unanimously for the rate cut while maintaining a neutral stance.

The rate cut comes even as the past four headline inflation prints were above 5 per cent.

RBI Governor Sanjay Malhotra noted that inflation is expected to decline.

This was the first MPC meeting since Malhotra took over as RBI governor in December last year.

In a major relief for banks, the RBI governor also deferred the implementation of certain regulations related to liquidity coverage ratio and project financing norms, and the expected credit loss framework for loan loss provisioning.

Malhotra said inflation has declined and is expected to moderate further, while growth is likely to recover from the low of 5.4 per cent in Q2FY25.

However, he noted that growth remains significantly below last year's levels (FY24).

"These growth-inflation dynamics open up policy space for the MPC to support growth while remaining focused on aligning inflation with the target," he said.

He further said: "The MPC, while continuing with the neutral stance, felt that a less restrictive monetary policy is more appropriate at the current juncture."

At the same time, he warned that excessive volatility in global financial markets, continued uncertainties about global trade policies, and adverse weather events pose risks to the growth and inflation outlook. "This calls for the MPC to remain watchful.