RBI Policy Feb 7: Good News Ki Baarish! After Budget's Tax Relief, MPC Unanimously Cuts Repo Rate By 25 Bps

RBI Monetary Policy February 7: Adding a slew of good news to common man after big tax reliefs in Budget 2025, the Sanjay Malhotra led monetary policy committee (MPC) has unanimously decided to reduce policy repo rate by 25 bps to 6.25%. This will be the first repo rate cut in five years. Rates were paused for 11 consecutive policies under former governor Shaktikanta Das. The latest rate cut brings massive good news to borrowers of personal loans, home loans, car loans and more.

Consequently, the standing deposit facility (SDF) rate were trimmed to 6 per cent, while the marginal standing facility (MSF) rate and the Bank Rate were brought down to 6.50 per cent.

Notably, MPC decided to continue with the neutral monetary policy stance and to remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth.

The MPC's policy outcomes are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.

The February 2025 policy is the first for the newly appointed governor Sanjay Malhotra who took over from previous governor Shaktikanta Das. Malhotra had chaired the three-day policy meeting of six-member MPC from February 5th, and its outcomes are announced on February 7th.

Here is the snippet of economic data which played a role in influencing RBI's policy outcomes.

Inflation: India's consumer price index (CPI) has eased for the second time in a row to 5.22% in December 2024 from previous month's 5.48%. This is also the second consecutive month that CPI has stayed below RBI's upper tolerance limit after hitting 6.21% in October 2024. But inflation continues to stay above RBI's main objective of 4% since September last year.

GDP: India's gross domestic product (GDP) growth has slowed the most since December 2022, to a staggering 5.4% in September quarter of FY25. Trading Economics data revealed that the drop consolidated India's softening momentum after enjoying a prolonged period of being the fastest-growing major economy in the world. The economic survey of 2024-25 expects GDP growth at 6.4% for FY25, which would become the slowest growth in four years. While the survey predicted FY26 GDP growth between 6.3-6.8%.

Rupee: Ahead of RBI policy, rupee extended its record low to 87.54 against the US dollar due to the increased demand in the greenback. The rupee has taken a massive blow this week since concerns related to US tariff policies heightened.

RBI under Shaktikanta Das's leadership had kept the repo rate unchanged for the 11th time in a row to 6.5% between February 2023 to December 2024 monetary policies. Consequently, the standing deposit facility (SDF) rate were earlier kept at 6.25%, while the marginal standing facility (MSF) rate and the Bank Rate at 6.75%. The repo rate was increased by 250 bps between May 2022 to February 2023 after extreme inflationary pressure escalated due to Russia's invasion of Ukraine. RBI was not alone, all other central banks globally were pushed to hike key fund rates. However, unlike RBI, the Fed and central banks in other economies have eased the rate cycle significantly in 2024.