RBI Cuts Repo Rates by 25 Basis Points to 6.25% After 5 Years.

RBI Lowers Repo Rate to 6.25% with First Cut in 5 Years

Written by: Supriya Kadu

Edited by: Pinky Deshmukh

Last Updated: February 07, 2025

Summary: The repo rate is now down to 6.25% from 6.5% after 5 years.

The repo rate, or the rate at which the RBI lends to other banks, was lowered by 25 basis points to 6.25% on Friday by the Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC). The RBI hasn't lowered interest rates in five years, with the most recent one occurring in May 2020.

The MPC's three-day meeting to deliberate and determine the new interest rates took place on February 5. This was the first after Sanjay Malhotra, the Governor of RBI, assumed leadership in December 2024, after Shaktikanta Das's term ended.

The action was taken just one week after the Center lowered personal income taxes to increase spending. Initially the repo rate was 6.5%, now down to 6.25%. However the benchmark repo rate still stands unchanged at 6.5%.

The RBI announced a 50 basis point reduction in the cash reserve ratio (CRR), making it 4%, at the most recent MPC meeting in December 2024, which may have resulted in a ₹1.16 trillion liquidity increase.

To boost economy by making borrowing feasible, the RBI's MPC agreed to decrease the repo rate, encouraging investment and spending. However, the MPC chose to stick with its "neutral" economic approach, which RBI Governor Sanjay Malhotra indicated would give them flexibility in responding to the changing macroeconomic landscape.

Malhotra claimed that average inflation has decreased since the adaption of framework and that it has performed well for the Indian economy over the years, even during the highly challenging period following the pandemic.

According to Malhotra, the framework has been highly helpful to the Indian economy over the years, even during the extremely difficult time following the pandemic, and average inflation has decreased since its implementation.

He continued by saying that, save from a few instances in which it surpassed the upper tolerance band, the CPI has generally remained on par with the target since the acceptance of the framework.