RBI cuts repo rate by 25 bps to 6% lowers FY26 GDP growth

RBI lowers repo rate by 25 bps and trims GDP projection for FY26, citing controlled inflation and global trade and policy uncertainties

The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) has unanimously decided to reduce the repo rate by 25 basis points to 6 per cent, Governor Sanjay Malhotra announced on Wednesday. This marks the second rate cut this year. In February, the central bank had lowered the rate to 6.25 per cent from 6.5 per cent—its first cut in nearly five years.

The standing deposit facility (SDF) rate has been adjusted to 5.75 per cent from 6 per cent, and the marginal standing facility (MSF) rate to 6.25 per cent from 6.5 per cent.

The MPC has shifted to an ‘accommodative’ stance. A neutral stance allows the central bank to either increase or decrease rates based on inflation and growth dynamics, whereas an accommodative stance focuses on supporting economic growth by lowering interest rates. By contrast, a withdrawal of accommodation typically aims to control inflation through rate hikes or tighter monetary policy.

Monetary easing and inflation under control

India’s retail inflation remained moderate, standing at 3.61 per cent in February 2025, well below the RBI’s 4 per cent target. With inflation under control, policymakers have shifted focus towards sustaining economic growth, especially in the context of global trade uncertainties. The repo rate reduction comes amid the United States’ imposition of a 26 per cent tariff on Indian imports, fuelling concerns about the outlook for India’s export-driven sectors.

What does a lower repo rate mean?

The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks against government securities. A reduction in this rate lowers borrowing costs for banks, which, in turn, can offer loans at reduced interest rates to businesses and consumers.

Lower interest rates typically encourage business expansion, infrastructure development, and consumer spending, as borrowing becomes more affordable. However, monetary easing is undertaken only when inflation remains within acceptable limits and additional liquidity is necessary to support economic growth.

GDP growth projections by RBI

India’s real gross domestic product (GDP) is expected to grow by 6.5 per cent year-on-year, revised downward from the earlier projection of 6.7 per cent for the ongoing financial year 2025–26 (FY26). The revised quarter-wise growth

Q1: 6.5 per cent (revised from 6.7 per cent)
Q2: 6.7 per cent (revised from 7.0 per cent)
Q3: 6.6 per cent (revised from 6.5 per cent)
Q4: 6.3 per cent (revised from 6.5 per cent)

Governor Sanjay Malhotra attributed the downward revision in GDP projections to uncertainties in global trade and policy dynamics.

Inflation predictions by RBI

India’s retail inflation eased to a seven-month low of 3.61 per cent in February 2025, falling below the RBI’s medium-term target of 4 per cent for the first time since August 2024.

“The outlook for food inflation has turned decisively positive. Concerns regarding rabi crops have abated considerably, and the second advance estimates point to record wheat production and high production of key pulses over the past year, along with robust kharif arrivals. This is expected to set the stage for a durable softening of food prices,” RBI Governor Sanjay Malhotra said. However, he flagged global uncertainties and adverse weather-related supply disruptions that may affect inflation trends.

For the financial year 2025–26 (FY26), assuming a normal monsoon, the consumer price index (CPI) inflation is projected at 4 per cent, revised downward from the earlier forecast of 4.2 per cent.

The quarter-wise CPI inflation projections are:

Q1: 3.6 per cent (revised from 4.5 per cent)
Q2: 3.9 per cent (revised from 4.0 per cent)
Q3: 3.8 per cent (unchanged)
Q4: 4.4 per cent (revised from 4.2 per cent)

The next RBI MPC meeting is scheduled for June 4–6.

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