RBI MPC Meeting: Repo Rate Cut to 5.5% and Inflation Forecast Revised
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has announced a 50 basis points cut in the repo rate to 5.5%, with the inflation forecast revised to 3.7% for FY26.
RbiRepo RateInflationGdp GrowthMpc MeetingReal Estate NewsJun 07, 2025
What to expect after the repo rate reduction? After a 50 basis points slash in the repo rate, it is anticipated that all external benchmark lending rates (EBLR) linked to it will decline by a similar margin. Historical trends suggest that in February 2025, most banks reduced their rates by the same magnitude. Furthermore, the rate cut is likely to benefit the bond market, as falling interest rates typically lead to a rise in bond prices.
The Consumer Price Index (CPI) inflation for 2025-26 has been estimated at 3.7 per cent, lower than the 4 per cent predicted earlier, as per the RBI Governor’s announcement. The real GDP growth for 2025-26 is projected at 6.5 per cent. For the financial year 2024-25, the growth rate stood at 6.5 per cent, marking a four-year low.
The MPC's decision to cut the repo rate is aimed at stimulating economic growth by reducing borrowing costs for businesses and consumers. This move is expected to boost investment and consumer spending, thereby supporting the economy. However, the committee remains vigilant about potential risks such as geopolitical tensions and weather-related challenges that could impact the economic outlook.
In summary, the RBI's decision to lower the repo rate and revise the inflation forecast reflects a balanced approach to managing economic growth and stability. The MPC's commitment to monitoring and addressing potential risks ensures that the economy remains on a steady path towards recovery and growth.
Frequently Asked Questions
What is the repo rate?
The repo rate is the interest rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks. It is a key tool used by the RBI to control liquidity and manage inflation in the economy.
Why did the RBI cut the repo rate?
The RBI cut the repo rate to stimulate economic growth by reducing borrowing costs for businesses and consumers. This move is expected to boost investment and consumer spending, thereby supporting the economy.
What is the impact of a repo rate cut on the bond market?
A repo rate cut typically leads to a rise in bond prices. This is because falling interest rates make existing bonds with higher yields more attractive, leading to increased demand and higher prices.
How does the repo rate cut affect banks' lending rates?
After a repo rate cut, banks are expected to reduce their external benchmark lending rates (EBLR) by a similar margin. This makes borrowing cheaper for businesses and consumers, which can stimulate economic activity.
What is the projected GDP growth for 2025-26?
The Reserve Bank of India (RBI) has projected the real GDP growth for 2025-26 at 6.5 per cent, which is the same as the previous forecast. However, the committee notes that geopolitical tensions and weather vagaries pose headwinds to this projection.
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