In a move aimed at bolstering domestic growth amid rising global economic uncertainties, the Reserve Bank of India (RBI) on Tuesday slashed the benchmark repo rate by 25 basis points, bringing it down from 6.25% to 6.00%. This is the second consecutive rate cut by the central bank in 2025.
The Monetary Policy Committee (MPC), in a majority decision, also shifted its policy stance from “neutral” to “accommodative,” signaling a readiness to support economic expansion further, if needed.
Addressing a press conference, RBI Governor Shaktikanta Das stated, “The decision to cut the repo rate is driven by the need to sustain growth momentum, particularly in the backdrop of increasing geopolitical tensions and renewed tariff barriers.”
The rate cut comes at a critical juncture when India’s economic recovery faces headwinds from escalating global trade tensions—most notably, the recent imposition of tariffs by the United States on select Indian goods. These developments, the RBI noted, pose downside risks to exports and investor confidence.
Growth Forecast Trimmed
Alongside the rate cut, the central bank revised India’s GDP growth projection for FY 2025-26 downward from 6.7% to 6.5%, citing subdued private consumption and global trade volatility. However, inflation remains within the RBI’s target range, allowing room for monetary easing.
Impact on Borrowers and Markets
The reduction in the repo rate is expected to bring relief to retail and corporate borrowers, as banks are likely to pass on the benefits in the form of reduced interest rates on home, auto, and personal loans. Stock markets responded positively to the announcement, with benchmark indices posting moderate gains in anticipation of improved liquidity and credit availability.
Industry Response
Industry leaders have largely welcomed the move. FICCI President Anish Shah remarked, “The RBI’s proactive step reinforces confidence in the financial system and is aligned with the needs of a slowing economy. It will help revitalize private sector investment and consumer spending.”
Economists, however, advised caution. “While the rate cut provides immediate support, the RBI must balance growth concerns with the possibility of inflationary pressures in the medium term,” noted Radhika Rao, Senior Economist at DBS Bank.
Looking Ahead
With the global economic landscape remaining volatile, the RBI’s accommodative stance suggests the possibility of further easing if the situation warrants. All eyes will now be on subsequent inflation and growth data to gauge the effectiveness of the current policy approach.
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