RBI MPC Reduces Repo Rate by 25 Basis Points; Policy Stance Shifted to Accommodative
The Reserve Bank of India’s Monetary Policy Committee (MPC) has reduced the repo rate by 25 basis points to 6.00%, effective immediately. Additionally, the policy stance has been revised from neutral to accommodative, reflecting the recent trend of easing headline inflation over the past few months.
The repo rate, which is the interest rate at which the RBI lends short-term funds to commercial banks, was previously lowered on February 7, 2025, when the MPC unanimously reduced it by 25 basis points from 6.5% to 6.25%. That move marked the first rate cut in nearly five years.
Updated Policy Rates:
- Repo Rate: 6.00%
- Standing Deposit Facility (SDF) Rate: 5.75%
- Marginal Standing Facility (MSF) Rate: 6.25%
- Bank Rate: 6.25%
- Reverse Repo Rate: 3.10%
- Cash Reserve Ratio (CRR): 4.5%
- Statutory Liquidity Ratio (SLR): 18%
According to RBI Governor Mr. Sanjay Malhotra, the change in policy stance to “accommodative” implies that, in the absence of major economic shocks, the MPC will now consider either maintaining the status quo or implementing further rate cuts. He emphasized that the policy stance should not be directly interpreted as a reflection of current liquidity conditions.
A neutral stance typically signifies that the prevailing economic conditions do not necessitate either tightening to control inflation or easing to stimulate growth, thereby offering flexibility for future policy action. In contrast, an accommodative stance indicates a willingness to adjust monetary policy to support growth, especially when inflation remains within the target range.
Inflation Outlook:
India’s retail inflation eased to a seven-month low of 3.61% in February 2025, falling below the RBI’s medium-term target of 4%. Despite this favorable development, risks to the inflation outlook remain. Notably, U.S. President Donald Trump has announced the imposition of a 26% reciprocal tariff on Indian goods, effective April 9. This move could introduce inflationary pressures by increasing import costs, potentially leading to higher domestic prices and subdued demand. Economists have also cautioned against possible recessionary effects stemming from the trade tensions.
Growth Projections:
Governor Malhotra projected GDP growth for FY 2025–26 at 6.5%, with quarterly growth estimates as follows:
- Q1: 6.5%
- Q2: 6.7%
- Q3: 6.6%
- Q4: 6.3%
Note on the Standing Deposit Facility (SDF):
Introduced in April 2022, the SDF serves as the new floor for the RBI’s monetary policy corridor. It enables the central bank to absorb excess liquidity from the banking system without providing collateral. While the reverse repo rate remains a part of the RBI’s policy toolkit, its active use is currently at the RBI’s discretion. In practice, the SDF has largely replaced the reverse repo rate for liquidity absorption operations.
