February 7, 2025 | Biznewsweek
In its latest monetary policy announcement, the Reserve Bank of India (RBI) reduced the policy repo rate by 25 basis points, bringing it down from 6.50% to 6.25%. This decision was taken unanimously by the Monetary Policy Committee (MPC) after its three-day meeting held from February 5-7, 2025. The RBI also decided to maintain a neutral policy stance, signaling flexibility in responding to evolving economic conditions.
Key Policy Changes:
- Repo Rate: Reduced to 6.25% from 6.50%
- Standing Deposit Facility (SDF) Rate: Adjusted to 6.00%
- Marginal Standing Facility (MSF) Rate & Bank Rate: Set at 6.50%
Rationale Behind the Decision:
Governor Shaktikanta Das highlighted that the decision was driven by moderating inflation trends and the need to support economic growth. Inflation has shown a declining trajectory, supported by favorable food prices and the continued impact of earlier monetary policy actions. The RBI projects CPI inflation for 2025-26 at 4.2%, with risks evenly balanced.
On the growth front, real GDP for the current fiscal year is estimated at 6.4%, a slowdown from last year’s robust 8.2%. However, economic activity is expected to improve, with GDP growth projected at 6.7% for the next year. The MPC cited global headwinds, such as volatile financial markets, tightening global conditions, and geopolitical uncertainties, as factors warranting a cautious approach.
Global and Domestic Economic Landscape:
The Governor noted the challenging global environment, marked by slowing growth, persistent inflation in services, and tightened financial conditions in emerging markets due to capital outflows. Despite these pressures, the Indian economy remains resilient, although not immune to global shocks, as evidenced by recent depreciation pressures on the Indian Rupee.
Regulatory Updates:
The RBI also announced plans to strengthen regulatory frameworks, focusing on liquidity coverage ratios (LCR), expected credit loss (ECL) provisioning norms, and prudential regulations for projects under implementation. The Governor emphasized a consultative approach to regulatory changes, balancing stability, consumer protection, and efficiency.
External Sector Highlights:
India’s current account deficit (CAD) has moderated to 1.2% of GDP, and the country continues to be the largest recipient of global remittances. Foreign exchange reserves stand strong at $630.6 billion, providing over 10 months of import cover, underscoring the resilience of the external sector.
Outlook:
The RBI remains committed to ensuring financial stability while supporting growth. With inflation moderating and growth expected to rebound, the central bank aims to navigate the complex global and domestic economic landscape with a balanced and flexible policy approach.
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