The Reserve Bank of India (RBI) cut the repo rate by 0.25% to 6.25%, marking the first rate cut in 57 months.
Repo rate is the rate at which RBI lends to other banks. One basis point (bps) = 0.01%.
The cut aims to support growth as economic expansion slows down and to encourage inflation to ease to 4.4% this quarter and 4.2% in 2025-26.
Lower interest rates may make loans for homes, cars, and other purchases cheaper for consumers.
The rate cut follows the 2025-26 Union Budget, which includes ₹1 lakh crore in income tax breaks to boost urban demand.
Inflation is expected to decrease, with projections of 4.5% in Q1 of 2025-26 and 4.2% in Q4.
GDP growth is projected at 6.7% for 2025-26.
Global uncertainties, geopolitical tensions, and market volatility remain risks to economic growth.
Rural demand is rising, while urban consumption is still weak. Improving employment and tax relief from the Budget could support future growth.
The RBI aims to maintain stability in the currency market but won't target specific exchange rates.
India’s forex reserves are robust at $630.6 billion.
The RBI acknowledged a liquidity crunch in recent months and is taking steps to ease the situation by monitoring and ensuring sufficient liquidity in the financial system.
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