Reserve Bank cuts repo rate by 25 basis points

07-Feb-2025 04:33 PM

The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points (0.25%), taking it from 6.50% to 6.25%. This marks the first time in five years that the RBI has cut the repo rate.

The decision was made by the six-member Monetary Policy Committee (MPC) during their latest meeting. The move aims to stimulate economic growth, with the GDP growth rate estimated at 6.7%.

This reduction follows recent tax cuts in the Union General Budget, including exemptions for annual income up to Rs 12 lakh, which could further boost demand and consumption.

The repo rate is the rate at which the RBI lends money to commercial banks. By lowering this rate, the RBI hopes to make borrowing cheaper for banks, which may then pass on the benefits to customers in the form of lower loan EMIs, including for home and car loans. This could encourage both spending and investment, further boosting economic activity.

The decision comes after a period of high food inflation, which has now been brought under control, allowing the RBI to take this step. The consumer price index is also nearing the RBI's target, making this rate cut more feasible.

In short, this action by the RBI is a positive move to stimulate economic growth by making loans cheaper and encouraging investment and consumption.