Reserve Bank of India (RBI) has announced a 25 basis points reduction in the policy repo rate, bringing it down to 6.25% with immediate effect. The decision was taken during the 53rd meeting of the Monetary Policy Committee (MPC), held from February 5 to 7, 2025, under the chairmanship of Governor Sanjay Malhotra.
Following the repo rate cut, the standing deposit facility (SDF) rate has been adjusted to 6%, while the marginal standing facility (MSF) rate and the Bank Rate stand at 6.5%. The MPC has opted to maintain a neutral monetary policy stance, focusing on achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2% while supporting economic growth.
Economic outlook
The global economy continues to face challenges, including a slower pace of disinflation, geopolitical tensions, and financial market uncertainties. However, high-frequency indicators suggest resilience in global trade.
On the domestic front, India’s real GDP growth for 2024-25 is estimated at 6.4%, primarily driven by a recovery in private consumption and a resilient services sector. Agricultural recovery is also contributing to growth, while industrial expansion remains sluggish.
Looking ahead to 2025-26, strong rabi prospects and an expected industrial recovery are projected to sustain economic growth. Key drivers of demand include robust household consumption, supported by tax relief in the Union Budget 2025-26, and a revival in fixed investment due to improved capacity utilization and healthy corporate and financial institution balance sheets. Government-led capital expenditure and resilient services exports will further bolster growth. However, geopolitical tensions, protectionist trade policies, and commodity price volatility pose downside risks. The RBI has projected a real GDP growth rate of 6.7% for 2025-26, with quarterly estimates as follows: 6.7% in Q1, 7% in Q2, and 6.5% in both Q3 and Q4.
Inflation trends
Inflationary pressures have moderated in recent months. Headline inflation declined in November-December 2024 from a peak of 6.2% in October, primarily due to a reduction in food inflation, particularly vegetable prices. Core inflation across goods and services remained subdued, while fuel prices continued to experience deflation.
CPI inflation for 2024-25 is projected at 4.8%, with Q4 at 4.4%. Assuming a normal monsoon next year, CPI inflation for 2025-26 is projected at 4.2%, with Q1 at 4.5%, Q2 at 4.0%, Q3 at 3.8%, and Q4 at 4.2%, the Governor stated.
