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Updated April 9th 2025, 17:26 IST
RBI Cuts Repo Rates By 25 BPS: 4 Things That Will Affect You
The decision to cut the rate was taken by the Monetary Policy Committee (MPC) and was accompanied by a shift in policy stance from "neutral" to "accommodate".
The Reserve Bank of India ( RBI ) has reduced the repo rate by 25 basis points (bps), bringing it down to 6%. This is the second rate cut by the central bank this year, as it aims to boost economic activity amid rising global uncertainties.
It is worth noting that the repo rate is the interest rate at which the central bank lends money to commercial banks when there is a shortage of funds.
The decision to cut the repo rate was taken by the Monetary Policy Committee (MPC) and was accompanied by a shift in policy stance from "neutral" to "accommodative." This means the RBI is now open to further rate cuts if required and is unlikely to raise rates in the near future.
RBI Governor Sanjay Malhotra stated that the move is aimed at supporting growth, especially as global trade tensions—including new tariffs from the US—pose fresh risks to the Indian economy.
The rate cut is also expected to bring several benefits to both the economy and the average consumer.
How Will It Be Beneficial?
The RBI’s latest move is expected to provide much-needed relief to consumers and the broader economy.
1. Relief for Borrowers:
Home loan borrowers are likely to benefit first, with EMIs expected to come down in the coming weeks. Lower interest rates usually lead to cheaper loans, making borrowing more attractive and driving up demand.
2. Boost in Liquidity:
The rate cut is also expected to enhance liquidity in the banking system, making funds more accessible for both businesses and individuals. This increased availability of credit can stimulate economic activity.
3. Push for Consumer Spending and Consumption:
Economists believe the rate cut will encourage higher consumer spending, boosting overall consumption. This comes at a critical time when markets are under pressure and investment activity has slowed due to global uncertainties.
4. Higher Disposable Income
The RBI’s decision, coupled with recent tax relief for the middle class announced by Finance Minister Nirmala Sitharaman , is expected to boost disposable income. This can help restore consumer confidence and support demand, giving the economy a much-needed push.
With inflation still within the RBI’s target range, analysts believe there is room for additional rate cuts later this year. Some expect another 50 bps to be reduced if economic growth remains subdued.
Published April 9th 2025, 11:51 IST