RBI cuts repo rate to 6.25%—first in five years! GDP growth pegged at 6.7%, inflation stable at 4.2%. Balancing growth & risks, RBI stays flexible amid global uncertainties.
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting took place from February 5-7, 2025, with the much-anticipated policy decision announced at 10:00 AM on February 7 by RBI Governor Sanjay Malhotra. This meeting marked a significant moment in India’s monetary policy, as it resulted in the first repo rate cut in five years, alongside key insights into GDP growth, inflation forecasts, and financial market stability.
Governor Malhotra emphasized that the MPC’s decisions impact all citizens, influencing borrowing costs, economic growth, and inflation control. Let’s dive into the major takeaways from the February 2025 MPC meeting.
Key Monetary Policy Decisions
The RBI’s Monetary Policy Committee (MPC) announced a 25 basis points reduction in the policy repo rate under the Liquidity Adjustment Facility (LAF), bringing it down to 6.25%.
Alongside this, the Standing Deposit Facility (SDF) rate was adjusted to 6.00%, while the Marginal Standing Facility (MSF) rate and the Bank Rate were revised to 6.50%.
The RBI also reaffirmed its neutral monetary policy stance, emphasizing its commitment to aligning inflation with the target while simultaneously supporting economic growth.
Notably, this repo rate cut marks the first reduction since May 2020, when the RBI had aggressively slashed rates during the COVID-19 pandemic to stimulate the economy.
This latest decision signals a shift toward a less restrictive monetary policy, reflecting the central bank’s focus on boosting growth amid global economic uncertainty.
Growth Outlook for 2025-26
The RBI’s growth projections for India present a balanced outlook, reflecting strong domestic consumption while acknowledging global economic uncertainties. Global growth remains below historical averages, weighed down by slower disinflation, geopolitical tensions, and policy uncertainties.
Despite these challenges, India’s Real GDP Growth for FY 2024-25 is projected at 6.4%, driven by a recovery in private consumption, expansion in the services and agriculture sectors, and robust exports of services.
Looking ahead, GDP growth for FY 2025-26 is estimated at 6.7%, with quarterly growth rates of 6.7% in Q1, 7.0% in Q2, and 6.5% in both Q3 and Q4.
Key growth drivers include resilient household consumption, which remains strong due to tax relief measures introduced in the Union Budget 2025-26.
Fixed investments are also expected to recover, supported by high capacity utilization, strong corporate balance sheets, and the government’s continued focus on capital expenditure.
However, there are several downside risks to this growth outlook, including rising global trade restrictions, geopolitical conflicts, commodity price fluctuations, and financial market volatility.
Additionally, protectionist trade policies could pose challenges to India’s export sector, adding another layer of uncertainty to the economic landscape.
Inflation Outlook for 2025-26
The RBI’s inflation outlook signals moderation but remains cautious due to external risks such as global financial market uncertainties, energy price volatility, and adverse weather conditions affecting food supply.
Headline inflation softened in November-December 2024, declining from a 6.2% peak in October, primarily due to a drop in food inflation, particularly in vegetables. Meanwhile, core inflation across goods, services, and fuel remains subdued, reflecting stable domestic demand and supply conditions.
Looking ahead, food inflation is expected to decline further, supported by strong kharif production, easing vegetable prices, and favorable rabi crop prospects. While core inflation may see a slight uptick, it is projected to remain moderate overall.
The Consumer Price Index (CPI) inflation for FY 2024-25 is forecasted at 4.8%, with Q4 expected at 4.4%. For FY 2025-26, CPI inflation is projected at 4.2%, with quarterly estimates of 4.5% in Q1, 4.0% in Q2, 3.8% in Q3, and 4.2% in Q4.
Despite potential risks from external factors, the inflation trajectory remains within the RBI’s target range, allowing room for further monetary policy easing if needed. The central bank continues to monitor global economic trends, supply chain disruptions, and commodity price fluctuations to ensure inflation stability while supporting economic growth.
What Lies Ahead?
The RBI MPC’s latest decisions reflect a cautious yet supportive stance, balancing economic growth with inflation control. The repo rate cut of 25 basis points to 6.25% marks a shift toward a less restrictive monetary policy, aimed at sustaining growth amid global uncertainties.
Inflation remains within RBI’s target range, with FY 2024-25 CPI inflation projected at 4.8% and FY 2025-26 at 4.2%. However, risks from energy price volatility, global financial instability, and geopolitical tensions persist.
India’s GDP growth is projected at 6.4% for FY 2024-25 and 6.7% for FY 2025-26, driven by private consumption, capital expenditure, and strong services exports. The RBI’s neutral stance provides flexibility to adjust policies as economic conditions evolve.
Going forward, the RBI will closely monitor risks, ensuring financial stability and economic resilience, while supporting India’s long-term growth trajectory through data-driven policy adjustments.
