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The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points to 5.25 per cent, aiming to support economic growth, which reached a six-quarter high of 8.2 per cent in the second quarter. The decision follows a period of historically low retail inflation, which fell to 0.25 per cent in October. The move is expected to make housing, auto, and commercial loans more affordable. Despite concerns over the rupee hitting record lows against the dollar, the central bank has raised its GDP growth projection for the year to 7.3 per cent.
The Reserve Bank of India has lowered the repo rate by 25 basis points to 5.25 per cent, signaling a continued effort to bolster economic growth. The Central Bank's Monetary Policy Committee, led by Governor Sanjay Malhotra, made the decision unanimously while maintaining a neutral stance. Advertisement
The reduction comes amid a period of extremely low retail inflation. India's consumer price index (CPI) based retail inflation dropped to a record 0.25 per cent in October, the lowest since the CPI series began. Coupled with this, the Indian economy registered a strong GDP growth of 8.2 per cent in the second quarter, marking the highest growth in six quarters.
The rate cut is expected to ease borrowing costs across sectors, including housing, automobiles, and commercial lending, potentially stimulating further economic activity. Earlier this year, the RBI had reduced the repo rate by 25 basis points in both February and April, followed by a 50 basis point cut in June, responding to declining inflation levels. Retail inflation has remained below the 4 per cent target since February, driven largely by easing food prices and favorable base effects.
However, the Indian rupee has depreciated significantly, crossing 90 against the USD recently and raising concerns about rising import costs. The currency has weakened by approximately 5 per cent so far this year. Despite this, the RBI has raised its GDP growth forecast for the current financial year to 7.3 per cent, up from an earlier projection of 6.8 per cent, reflecting optimism about domestic demand and investment.
The Central Bank continues to be guided by its mandate to maintain CPI-based retail inflation at 4 per cent, allowing a margin of 2 per cent on either side, balancing growth support with price stability.
Source PTI
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