RBI MPC Meet: RBI governor Sanjay Malhotra surprised everyone pleasantly by cutting the repo rate by a larger-than-expected 50 basis points. Experts had widely predicted a 25 basis points rate cut, barring exceptions like SBI and Morgan Stanley who had anticipated a front loading of repo rate cut. With today’s cut, the repo rate now stands at 5.5%, down from 6%. The RBI has now cumulatively cut the repo rate by 100 basis points since the start of this year. This means good news for borrowers since home loan EMIs are expected to come down substantially over the course of the year as the full benefit of the 100 bps cut is passed on by banks.
Why did RBI cut repo rate by 50 bps? Explained
We take a look at rationale for Monetary Policy Committee’s decision:
- The projected inflation rate for the year has been adjusted lower to 3.7% from the previous estimate of 4.0%.
- Inflation has shown a notable decline during the past six months, moving from levels exceeding the tolerance band in October 2024 to considerably below the target, displaying widespread easing across sectors.
- Current projections for both immediate and longer periods provide assurance that headline inflation will consistently align with the 4% target. Furthermore, there is a strong likelihood that inflation figures will marginally fall below the target throughout the year.
- The outlook for food inflation continues to remain subdued, whilst core inflation is anticipated to stay moderate, influenced by decreasing international commodity prices, corresponding with the expected deceleration in global economic growth.
- However, GDP growth continues to fall short of desired levels, particularly due to global market challenges and prevailing uncertainties, said RBI.
- Given these circumstances, it is crucial to boost domestic consumer spending and capital investment through appropriate policy measures to enhance economic momentum, the RBI said.
- “This changed growth-inflation dynamics calls for not only continuing with the policy easing but also frontloading the rate cuts to support growth,” RBI said.
Also Check | RBI MPC Live UpdatesThe Monetary Policy Committee (MPC) cast their votes, resulting in a decision to lower the policy repo rate by 50 basis points, bringing it to 5.50%. Five members—Dr. Nagesh Kumar, Prof. Ram Singh, Dr. Rajiv Ranjan, Dr. Poonam Gupta and Sanjay Malhotra—supported the 50 basis points reduction. However, Saugata Bhattacharya opted for a more modest decrease of 25 basis points in the repo rate.“As global environment remains uncertain, it has become even more important to focus on domestic growth amidst sustained price stability. Accordingly, today’s monetary policy actions should be seen as a step towards propelling growth to a higher aspirational trajectory,” RBI governor Sanjay Malhotra concluded.