Mumbai:
RBI Makes Historic Rate Cut to Revitalize Economy
In a significant move to bolster the Indian economy, the Reserve Bank of India (RBI) has announced a 25 basis point cut in the repo rate, marking the first such reduction in nearly five years. This decision, made by the Monetary Policy Committee (MPC) under the new governance of RBI Governor Sanjay Malhotra, aims to address both global and domestic economic challenges.
Main Body Section
The MPC, comprising three RBI members and three external members, unanimously voted to lower the repo rate from 6.5% to 6.25%. This rate cut is the first since May 2020, when the RBI reduced the repo rate to 4% in response to the economic turmoil caused by the COVID-19 pandemic and subsequent lockdowns.
Governor Sanjay Malhotra, in his inaugural key address after assuming office in December, highlighted the challenging global economic landscape. Despite the global economy growing below historical averages, high-frequency indicators suggest a resilient global economy. However, Malhotra noted that the Indian economy is not immune to these global headwinds.
For the financial year ending March 2025, the Indian economy is estimated to grow at 6.4%. Looking ahead, the RBI projects real GDP growth of 6.7% in the first quarter, 7% in the second quarter, and 6.5% in both the third and fourth quarters of the upcoming financial year.
Retail inflation for the current financial year is projected at 4.8%, with the last quarter seeing a rate of 4.4%. Core inflation is expected to rise but remain moderate, while food inflation is anticipated to soften. The RBI also assured that bank liquidity buffers are sufficient and that proactive measures will be taken to maintain orderly liquidity conditions. The return on assets and equity for banks remains robust.
Malhotra expressed concern over the increasing incidence of digital frauds and urged banks to enhance their preventive and detection methods to combat this issue. The rate cut is expected to have implications for fixed deposit (FD) investors, who may need to act swiftly to secure higher interest rates.
