RBI Cuts Key Lending Rate By 25 Basis Points To 6.25 Per Cent, First Reduction Since May 2020

The Reserve Bank of India (RBI) has reduced its key repo rate for the first time in nearly five years.

The decision to cut the rate by 25 basis points, from 6.5 per cent to 6.25 per cent, was announced this morning (7 February) by RBI Governor Sanjay Malhotra in his first key address since assuming the role in December.

The RBI's Monetary Policy Committee (MPC), consisting of three internal and three external members, last reduced the repo rate in May 2020, NDTV reported.

Since then, the rate has remained unchanged through 11 consecutive policy meetings.

Malhotra highlighted the challenging global economic conditions, with growth below historical averages.

He pointed out that high-frequency indicators show resilience in the global economy.

The Indian economy is not immune to global headwinds, but it remains strong and resilient, he said.

The RBI Governor said the real GDP growth for the financial year ending this March has been estimated to be 6.4 per cent.

He also estimated the real growth expected in the upcoming financial year to be 6.7 per cent in Q1, 7 per cent in Q2, 6.5 per cent in Q3, and 6.5 per cent in Q4.

Malhotra said the retail inflation for the current financial year is estimated to be at 4.8 per cent, with a slight dip to 4.4 per cent in the final quarter.

He indicated that while core inflation is expected to rise, it will remain moderate, and food inflation should soften.

Stating that bank liquidity buffers are sufficient, the RBI Governor said they would take proactive measures to ensure orderly liquidity conditions for the system.

He also noted the robust return on assets and equity for banks.

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