Mumbai: The RBI’s Monetary Policy Committee (MPC) has cut the reporate by 25 basis points to 6.25%, ending the longest pause in the history of the monetary policy framework. Announced the decision, RBI Governor Sanjay Malhotra said the move was driven by mitigating inflation and promoting global risks by slowing growth.
Interest rate reductions will quickly reduce borrowing costs for millions of mortgage borrowers. Reduced by 25 basis points by Rs. A 15-year 1-krull mortgage will defeat EMI by about Rs. 1,460 per month.
This shows the first change in the reporate since February 2023 when RBI last hiked the rate. The decision on Friday was unanimous, a transition from the previous policy meeting, in which only two members, Nagesh Kumar and Ram Singh, voted for the cut. The MPC appears to have been led by easing further moderation inflation and forecasts for 2026, with concerns that global headwinds could put pressure on growth.
Malhotra said inflation has declined, supported by the positive food outlook and the continued communication of past monetary policy actions. “We expect further easing in 2025-26 and will gradually align with our target,” he said.
Regarding growth, he said the economy is set to recover in the second quarter of 2024-25, but well below 8.2% last year. “But global headwinds continue to affect uncertainty on the outlook, pose downward risks,” Malhotra said.
“This dynamic of growth inflation is focused on opening up policy spaces for MPCs to support growth and targeting inflation,” he said, with the committee taking 25 basis points to 6.25%. He added that he has decided to lower the number.
Malhotra also pointed to challenges in the global economy, where growth is below the historic average despite the resilience of high-frequency indicators and continued trade expansion. He said sustained inflation in service prices has stalled global disinflation progress.
“The outlook for US interest rate reductions has changed, the dollar has become stronger and bond yields have been strengthened,” he said. He added that emerging markets saw large capital outflows, sharp currency depreciation and a more severe financial position. Along with geopolitical tensions and policy uncertainty, diverging monetary policy in developed economies further increases market volatility.
