The Reserve Bank of India (RBI) on Wednesday reduced its key policy repo rate by 25 basis points to 6%, marking the second consecutive cut in 2025. Announced by Governor Sanjay Malhotra during the first monetary policy review of the financial year 2025-26, the decision reflects the central bank’s shift to an accommodative stance aimed at boosting economic growth amid easing inflation and global trade challenges.
The six-member Monetary Policy Committee (MPC), chaired by Governor Malhotra, unanimously voted for the 25 basis point reduction, bringing the repo rate down from 6.25% to 6%. This follows a similar cut in February 2025, signaling the RBI’s intent to prioritize growth over inflation control, with retail inflation dropping to a 21-month low of 3.6% in February. The MPC also revised its GDP growth forecast for FY26 to 6.5% from 6.7% and lowered the CPI inflation projection to 4% from 4.2%.
“The global economy is facing uncertainty due to reciprocal tariffs, notably from the US,” Malhotra said, referencing President Donald Trump’s trade policies. “Our focus is on non-inflationary growth,” he added, highlighting the need to support domestic consumption and investment.
The repo rate cut is expected to lower borrowing costs across the board. Home loans, car loans, and personal loans linked to the repo rate are likely to see reduced equated monthly installments (EMIs) in the coming months as banks pass on the benefit. “This is a breather for borrowers,” said Samir Jasuja, CEO of PropEquity, noting that housing prices have surged 50% post-Covid. However, depositors may face lower returns on fixed deposits as banks adjust rates downward.
The decision comes against a backdrop of declining food inflation, which fell to 3.8% in February 2025 due to a seasonal correction in vegetable prices. The RBI’s shift from a neutral to an accommodative stance—the first since the pandemic—indicates room for further rate cuts if needed. Analysts suggest this could stimulate sectors like real estate and manufacturing, though global headwinds, including a projected 20-40 basis point hit to GDP from US tariffs, remain a concern.
The Sensex and Nifty opened in the red on Wednesday, reflecting investor caution ahead of the announcement. Post-decision, financial stocks saw mixed responses, with non-banking financial companies like Muthoot Finance dropping up to 10% due to upcoming RBI regulations on gold-backed loans. “The cut aligns with expectations, but the tariff impact will be visible,” Malhotra noted, projecting a manageable current account deficit for FY26.
With the repo rate now at its lowest since early 2023, questions linger about future policy moves. Will the RBI continue its easing cycle, or will global uncertainties force a pause? For now, the central bank’s focus on growth offers relief to millions of borrowers while underscoring India’s resilience in a volatile world economy.
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