The Reserve Bank of India (RBI) lowered its repo rate by 25 basis points to 6.25%, marking the first rate cut in nearly five years. The move aims to stimulate the slowing economy amid easing inflation. While growth is projected to recover, it remains significantly below last year's levels.
The Reserve Bank of India ( RBI ) has announced a reduction in its key interest rate for the first time in nearly five years, signaling a proactive approach to stimulate the slowing Indian economy. The Monetary Policy Committee (MPC) voted unanimously to lower the repo rate by 25 basis points to 6.25%, a move widely anticipated by market analysts. This marks the first interest rate cut since May 2020, when the country was grappling with the economic fallout of the pandemic.
The RBI's decision is driven by easing inflation pressures, which have created room for the central bank to support economic growth. While inflation is projected to remain within the target range, the RBI anticipates real GDP growth for the next fiscal year to be 6.7%, slightly higher than the 6.4% projected for the current fiscal year ending March 2024. This downward revision reflects a challenging economic climate, with growth significantly lower than the previous year's performance.Despite the rate cut, the RBI maintained its policy stance as 'neutral,' a decision that surprised some market observers who had predicted a shift towards 'accommodative.' Governor Sanjay Malhotra emphasized that the MPC's focus remains on aligning inflation with the target while supporting growth. The governor acknowledged the recovery from the second quarter's low but stressed that growth remains 'much below that of last year.' The RBI is also closely monitoring the rupee's performance against the US dollar, as recent record lows could potentially exacerbate inflationary pressures. The central bank might employ measures in the foreign exchange market to mitigate a sudden outflow of foreign capital and prevent a sharp depreciation of the rupee
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