Mumbai, Dec 5 (NationPress) In a significant announcement, RBI Governor Sanjay Malhotra revealed on Friday that the monetary policy committee (MPC) has reached a unanimous decision to lower the repo rate by 25 basis points, adjusting it to 5.25 per cent from the previous 5.5 per cent in order to stimulate economic growth.

The RBI Governor elaborated that the Central Bank plans to inject additional liquidity into the economy through open market operations, specifically by purchasing government securities worth Rs 1 lakh crore. In addition, a dollar-rupee swap arrangement of $5 billion will be implemented.

Malhotra emphasized that the remarkable economic growth of 8.2 per cent in the second quarter of the current financial year, combined with a notable drop in inflation to 1.7 per cent, has created a rare “Goldilocks period” for the Indian economy.

The favorable inflation rate has provided the necessary leeway to proceed with a repo rate cut aimed at fostering growth. The RBI has also revised its GDP growth forecast for the country from 6.8 per cent to 7.3 per cent.

Furthermore, Malhotra confirmed that the RBI intends to maintain a “neutral policy stance.”

This neutral stance allows for neither excessive stimulation nor strict liquidity constraints, effectively balancing inflation control with growth support. The RBI has adhered to this stance while monitoring the effects of previous monetary policy adjustments and the ongoing trade implications.

The RBI Governor also noted that the nation’s foreign exchange reserves have reached an impressive $686 billion, sufficient to provide a solid import cover for 11 months.

However, he cautioned that geopolitical tensions and global trade uncertainties continue to pose downside risks for the economy.

Last week, the RBI Governor hinted at the possibility of a repo rate reduction during the monetary policy review on December 5 due to favorable macroeconomic indicators.

During the last two monetary policy meetings in August and October, the committee, led by the RBI Governor, opted to keep the repo rate unchanged to maintain inflation control.

Prior to this, the RBI had reduced the repo rate by 100 bps, moving from 6.5 per cent to 5.5 per cent swiftly between February and June, with the effects still being felt in the economy.

A lower policy rate combined with increased liquidity in banks typically leads to reduced interest rates on loans, facilitating easier borrowing for both consumers and businesses, which in turn drives higher consumption and investment, resulting in enhanced growth.

Nevertheless, the effectiveness of the rate cut will depend on how promptly and effectively commercial banks relay these benefits to borrowers.