Repo rate cut by RBI to 6.25% In February 2025 , the Reserve Bank of India (RBI) made an important decision that impacts how much we pay for loans and other financial services. The RBI’s Monetary Policy Committee (MPC), which is made up of six members, decided to lower the repo rate by 0.25%. The repo rate is the interest rate at which the RBI lends money to other banks. This means it’s now 6.25%, down from 6.5%. This is the first time in five years that the RBI has reduced the repo rate, with the last cut happening in May 2020.
Why did the RBI do this? The goal is to help the economy by making it cheaper for banks to borrow money. This could encourage people and businesses to borrow and spend more, which would boost economic activity. However, RBI Governor Sanjay Malhotra explained that the RBI is still being cautious and will continue to keep an eye on how the economy is doing.
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RBI’s Approach to Inflation and Growth
Governor Malhotra shared that the RBI has a flexible approach when it comes to inflation and economic growth. The goal is to keep inflation stable while encouraging economic growth. For example, the RBI is forecasting a growth rate of around 6.7% for the next financial year. This is a positive sign for the future, even though the economy is expected to grow more slowly in 2024-2025 (about 6.4%).
When it comes to inflation, the RBI expects prices to rise by about 4.2% in the next year, which is a reasonable and stable level. Retail inflation, which tracks the price of goods we buy every day, has already been decreasing, mainly because food prices, like vegetables, have gone down. The RBI’s target is to keep inflation close to 4%, and it hopes to achieve this in the next year.
What Happens When the Repo Rate Is Cut?
When the RBI cuts the repo rate, it becomes cheaper for banks to borrow money. This leads to lower interest rates on loans, including home loans, car loans, and personal loans. If the repo rate is cut, borrowers will see their monthly payments (EMIs) go down. Lenders might also lower interest rates on loans that are based on the marginal cost of funds-based lending rate (MCLR). This is good news for anyone with a loan, as they will have to pay less interest.
What Else Did the RBI Governor Say?
Governor Malhotra also emphasized that the RBI will continue to work closely with all stakeholders, like businesses and the government, before making any big decisions. This process helps make sure that the RBI’s actions are well thought out and consider everyone’s needs.
He also talked about the global economy, explaining that the world economy is growing more slowly than usual. High inflation and trade uncertainties are affecting many countries, which has caused some financial problems in emerging markets. Despite these challenges, the Indian economy is still strong, and the RBI is doing its best to protect the rupee and keep things stable.News
RBI’s Role in Currency and Foreign Exchange
The RBI also plays an important role in managing India’s foreign exchange rates. This includes setting the RBI exchange rate, the RBI currency rate, and the RBI forex rate. These rates are important for international trade and travel, as they determine how much one currency is worth compared to another. When global factors affect the value of the rupee, the RBI uses its tools, like the repo rate, to try to stabilize the currency and protect the economy.
Final Thoughts
The RBI’s decisions, like changing the repo rate, affect everyone, from people with loans to businesses and foreign trade. By lowering the repo rate, the RBI aims to support the economy and encourage growth. Governor Sanjay Malhotra has made it clear that the RBI will continue to use its policies to help the country stay on track, even as global challenges arise.
The RBI’s policies, such as the repo rate and reverse repo rate, are crucial in shaping the financial landscape of India. So, whether you’re saving, borrowing, or dealing with foreign exchange, these decisions impact your daily life. Keep an eye on future RBI announcements for more updates!
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