RBI Reduces Repo Rate by 25 Basis Points to 6.25% to Boost Economic Growth
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Synopsis
On February 7, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points to 6.25% in an effort to stimulate growth while maintaining a neutral stance on monetary policy. The move aims to enhance liquidity in the economy and foster demand.
Key Takeaways
- RBI reduces repo rate to 6.25%.
- Focus remains on controlling inflation.
- Government's fiscal deficit target reduced to 4.4% of GDP.
- Tax cuts for the middle class expected to boost spending.
- Close monitoring of rupee stability.
Mumbai, Feb 7 (NationPress) The Reserve Bank of India (RBI) has made a move to stimulate economic growth by reducing the repo rate by 25 basis points, bringing it down to 6.25%. This decision was made by the RBI's six-member Monetary Policy Committee (MPC) on Friday.
According to RBI Governor Sanjay Malhotra, the MPC has collectively decided to maintain a neutral stance while prioritizing inflation control alongside growth support. This approach will allow for flexible responses to the evolving macroeconomic landscape.
He noted that inflation rates have decreased and are anticipated to further decline, aligning more closely with the RBI's target levels.
Malhotra emphasized the RBI's commitment to ensuring adequate liquidity within the economy and mentioned plans to implement measures that promote lasting liquidity to fulfill the system's needs.
Additionally, he assured that the RBI is monitoring the rupee closely and taking all necessary actions to stabilize the Indian currency. He expressed optimism regarding a rebound in growth momentum in the Indian economy, particularly with the revival of rural demand.
However, he cautioned about uncertainties surrounding global trade and the implications of climate change on economic growth.
Malhotra pointed out that the MPC recognizes the need for vigilance due to significant fluctuations in global financial markets and trade policies.
This monetary policy announcement by the RBI follows closely after the announcement of the Budget 2025-26. The finance minister has opted to maintain a path of fiscal consolidation, reducing the fiscal deficit target to 4.4% of GDP for 2025-26 from the previous 4.8%, thereby minimizing the government's market borrowing requirements.
This creates additional room for the RBI to implement a softer monetary policy aimed at fostering growth.
Malhotra, a former finance ministry official, has previously declared an infusion of Rs 1.5 lakh crore into the banking system due to tight liquidity conditions in the financial sector.
The government has revised its net market borrowings projection for the 2025-26 financial year to Rs 11.54 lakh crore, resulting in increased funds available for corporate loans and consumer spending, thereby promoting growth.
According to senior officials, the fiscal policies introduced in the budget will work in conjunction with the RBI's monetary policy to enhance growth while maintaining price stability.
The budget has introduced substantial tax reductions for the middle class, allowing 1 crore individuals earning up to Rs 12.75 lakh annually to enjoy tax exemptions, effectively increasing disposable income for spending on goods and services. This is expected to bolster aggregate demand in the economy and drive growth.
