The Reserve Bank of India’s (RBI) six-member Monetary Policy Committee (MPC) Friday cut the repo rate — the rate at which the RBI lends to other banks — by 25 basis points to 6.25 per cent. This is the first rate cut initiated by the RBI in five years, the last one being in May 2020.
The repo rate, till now, stood at 6.5 per cent. The move comes barely a week after the Centre cut personal income tax to boost consumption. RBI’s new Governor, Sanjay Malhotra, has announced a 25 basis points reduction in the repo rate.
“The Monetary Policy Committee unanimously decided to reduce the policy rate by 25 basis points from 6.5 per cent to 6.25 per cent,” he said. The last revision of rates happened in February 2023 when the policy rate was hiked by 25 basis points to 6.5 per cent.
Also, the Standing Deposit Facility (SDF) rate is 6 percent and the Marginal Standing Facility (MSF) rate is 6.50 per cent. Malhotra said the flexible inflation targeting framework has served the Indian economy well. “Average inflation has been lower since this framework was put in place,” he added.
Governor Sanjay Malhotra also said the flexible inflation targeting framework has served the Indian economy well. “Average inflation has been lower since this framework was put in place,” he added.
The RBI’s MPC, in a unanimous decision, lowered the repo rate in a bid to stimulate economic activity by making borrowing cheaper, thereby encouraging spending and investment. The MPC, however, decided to continue with its “neutral” stance for the economy, which RBI Governor Sanjay Malhotra explained would provide flexibility to respond to the evolving macroeconomic environment.
Malhotra said that the framework has served the Indian economy very well over the years, including the very challenging period since the pandemic, and average inflation has been lower post the introduction of this framework. He added that since the introduction of the framework, CPI has been largely aligned to the target, barring a few occasions of breaching the upper tolerance band.
He also raised concerns about the rise in digital fraud and said that it warrants actions by all stakeholders. In order to keep a tab on such frauds, Malhotra said that banks will have exclusive domain name ‘fin.in‘ and registration for this will start in April.
“RBI has been taking various measures to enhance digital security in banking and payment systems. To extend the additional authentication factor to international digital payments to offshore merchants. I would urge banks and NBFCs to continuously improve preventive and detective controls to mitigate cyber risks,” he said.