The Reserve Bank of India (RBI) has lowered its key interest rate for the first time in nearly five years in an effort to stimulate the slowing economy. The move comes as inflation cools, providing the central bank with room to maneuver. The RBI also revised its growth and inflation forecasts for the coming year.
The Reserve Bank of India (RBI) has lowered its key interest rate for the first time in nearly five years, driven by a cooling inflation rate that provides room for stimulating the slowing economy. The Monetary Policy Committee (MPC) decided to reduce the repo rate by 25 basis points to 6.25%, marking the RBI's first interest rate cut since May 2020 when the country was grappling with a pandemic-induced downturn.
RBI Governor Sanjay Malhotra announced the decision in a live-streamed address on Friday. The rate cut was widely anticipated and signals a shift in the RBI's monetary policy stance. The central bank anticipates real GDP growth of 6.7% for the fiscal year 2026, while projecting inflation to settle at 4.2%. For the current fiscal year ending March, the RBI revised its real GDP growth forecast to 6.4%, its weakest performance in four years, compared to the previous estimate of 6.6%. Inflation, however, remains stable at 4.8%.Market reactions to the rate cut were mixed. Indian stock markets saw a dip, with the benchmark Nifty 50 index declining as much as 0.5%. The yield on 10-year bonds surged by over 4 basis points to 6.7%. The MPC, in a unanimous decision, maintained its policy stance at 'neutral'. This outcome surprised some market observers who had predicted a shift to a more accommodative stance prior to the announcement. Governor Malhotra emphasized that while growth is expected to rebound from the second quarter's low point, it remains significantly below last year's levels. He stated that the current growth-inflation dynamics present policymakers with an opportunity to support growth while staying committed to aligning inflation with the target
Reserve Bank Of India Economic Stimulus Interest Rates Inflation GDP Growth
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