RBI Cuts Repo Rate by 25 bps: Impact on Loans, Markets & Economy
For the first time in the last five years, the Reserve Bank of India (RBI) has decided to cut the repo rate. The last interest rate cut was announced in May 2020. Since then, the RBI had not made any changes to the interest rates for the past two years. Now, with this latest announcement, economists are discussing its potential impact on the stock market and the Indian economy.
How Much Was the Interest Rate Cut?
The decision was taken during the six-member Monetary Policy Committee (MPC) meeting of the RBI on Friday. The central bank has reduced the repo rate by 25 basis points (bps), bringing it down from 6.50% to 6.25%.
This announcement comes just a week after the central government’s decision to provide income tax exemptions up to ₹12 lakh in this year’s budget. With this rate cut, home and car loans are expected to become cheaper in the near future.
Focus on Increasing Investment and Spending
The repo rate cut is expected to make loans more affordable, leading to lower home loan and vehicle loan interest rates. As a result, people will have more disposable income, potentially boosting investment and market liquidity.
While announcing this decision, RBI Governor Sanjay Malhotra said:
“This approach has significantly benefited the Indian economy in recent years. It helped India navigate the challenges of the COVID-19 era, and after implementing this policy, the average inflation rate has come down. The RBI has followed a well-planned approach in managing interest rates.”
Global Market Developments & Impact on Rupee
The RBI’s decision is also being analyzed in the context of recent global market developments. Donald Trump recently announced a new tariff plan targeting Canada, Mexico, and China. While the implementation of tariffs on Canada and Mexico has been delayed by one month, global market uncertainty has increased.
This has led to a strengthening of the US dollar, causing other major currencies, including the Indian rupee, to weaken. The Indian rupee has fallen to its lowest level, reaching ₹87 per USD.
India’s Economic Growth Rate Estimated at 6.7%
Following discussions in the RBI MPC meeting, the country’s economic growth rate has been projected at 6.7%. Additionally, Governor Sanjay Malhotra stated that the wholesale inflation rate is expected to remain around 4.2%.
