The North News
Mumbai, February 7
The Reserve Bank of India (RBI) on Friday lowered its key policy rate by 25 basis points to 6.25 percent, marking its first cut in five years as it seeks to spur economic growth. The move comes after the government recently reduced personal income tax to boost consumption. The decision, taken unanimously by the RBI’s Monetary Policy Committee (MPC), aims to make borrowing cheaper and encourage spending and investment. “The MPC assessed the evolving macroeconomic situation and decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25% with immediate effect,” RBI Governor Sanjay Malhotra said. The standing deposit facility (SDF) rate was adjusted to 6.00 percent, while the marginal standing facility (MSF) rate and the Bank Rate stood at 6.50 percent. The committee retained its neutral stance, emphasizing inflation control while supporting growth.
Malhotra highlighted global economic challenges, including slower disinflation, geopolitical tensions, and policy uncertainties. However, the RBI Governor projected India’s real GDP growth at 6.4% for 2024-25, supported by private consumption recovery and a rebound in the services and agriculture sectors. Growth for 2025-26 is expected at 6.7%. He further said headline inflation softened sequentially in November-December 2024 from its recent peak of 6.2 per cent in October. “The moderation in food inflation, as vegetable price inflation came off from its October high, drove the decline in headline inflation. Core inflation remained subdued across goods and services components and the fuel group continued to be in deflation,” he further said.
“ Going ahead, food inflation pressures, absent any supply side shock, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects. Core inflation is expected to rise but remain moderate. Continued uncertainty in global financial markets coupled with volatility in energy prices and adverse weather events presents upside risks to the inflation trajectory,” the RBI Governor said.
He said that taking all these factors into consideration, CPI inflation for 2024-25 is projected at 4.8 per cent with Q4 at 4.4 per cent. “Assuming a normal monsoon next year, CPI inflation for 2025-26 is projected at 4.2 per cent with Q1 at 4.5 per cent; Q2 at 4.0 per cent; Q3 at 3.8 per cent; and Q4 at 4.2 per cent (Chart 2). The risks are evenly balanced, “ he added.
