RBI’s Monetary Policy: A 25 bps Rate Cut and Its Impact on the Indian Economy
The Reserve Bank of India (RBI) announced its latest monetary policy on February 7, 2025, marking a significant shift with a 25-basis point (bps) cut in the repo rate, bringing it down to 6.25%. This move, the first reduction in nearly five years, comes as the central bank aims to balance economic growth with inflation control under the leadership of newly appointed Governor Sanjay Malhotra.
Key Highlights of the RBI’s Monetary Policy
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Repo rate cut by 25 bps to 6.25%
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Neutral policy stance, allowing flexibility for future actions
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Inflation forecast for FY26 at 4.2%
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GDP growth projection for FY26 at 6.3% to 6.8%
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Regulatory changes to enhance cybersecurity and digital banking
Industry Leaders’ Reactions
Financial Sector Welcomes a Well-Timed Rate Cut
Mr. CS Setty, Chairman, SBI, praised the decision, stating:
“The RBI decision to start the easing cycle with a 25-bps cut was timely, contextual and also well communicated with respect to regulatory changes in transition to ensure a seamless and non-disruptive manner. The RBI growth and inflation forecasts for FY26 clearly show the delicate tradeoff between growth and inflation. The regulatory announcement on forward contracts, reviewing trade settling cycle, and addressing cybersecurity in banks and payment systems will ensure better price discovery, more broad-basing of participants, and ensuring trust in digital banking.”
This assessment highlights the RBI’s careful balancing act between growth and inflation while prioritizing financial security and market efficiency.
Boost to Housing and Home Loans
With home loan interest rates set to decline, the housing sector stands to benefit significantly. Girish Kousgi, MD & CEO, PNB Housing Finance, stated:
“The RBI’s decision to cut the repo rate by 25 basis points, the first rate cut since 2020, is a significant move that will provide much-needed relief to home loan borrowers and give a strong boost to the housing sector. Lower interest rates directly enhance affordability, making home loans more accessible for aspiring homeowners and first-time buyers.”
The decision is expected to drive renewed demand in the real estate market, further supported by the Finance Ministry’s recent budget announcements.
Impact on Oil & Gas Sector
The cut in repo rates will lower borrowing costs, positively impacting capital-intensive industries like oil and gas. Mr. Pankaj Kalra, CEO, Essar Oil and Gas Exploration and Production Limited, commented:
“Under the guidance of new Governor Mr. Sanjay Malhotra, RBI’s decision to cut the repo rate by 25 basis points is a move that signals a supportive approach toward sustaining economic growth. This reduction, after nearly five years, will help ease borrowing costs and provide much-needed liquidity to key sectors. For the oil and gas industry, a lower interest rate environment will encourage investment in exploration, infrastructure, and energy transition projects, ensuring a stable and efficient energy ecosystem.”
This indicates that lower financing costs will drive investment in energy transition projects, aligning with India’s long-term energy security goals.
Economic Growth and Stability
Providing an expert economic perspective, Ranen Banerjee, Partner and Leader, Economic Advisory, PwC India, emphasized:
“The new RBI Governor and the MPC delivered the widely accepted 25bps policy rate cut with policy stance as neutral leaving room for it to take further actions in its next meeting. The MPC would have got comfort from the expectation of a moderating food inflation and under-check core inflation, giving an inflation estimate for FY26 at 4.2%. It has delivered the required monetary policy support to the economy, and this, combined with the consumption boost from the tax relief announced in the budget, should give momentum to demand and push the FY26 growth rate to the higher end of the 6.3% to 6.8% growth range anticipated in the Economic Survey.”
This highlights how fiscal and monetary policy coordination can sustain economic momentum in the upcoming financial year.
Gold Loan and Financial Inclusion
Mr. George Alexander Muthoot, MD of Muthoot Finance, expressed optimism regarding the potential boost to credit expansion:
“We welcome the RBI’s latest monetary policy decisions under the leadership of the newly appointed Governor, Sanjay Malhotra. The central bank’s neutral stance, focused on balancing stability with growth, underscores a prudent approach to strengthen India’s economic resilience amid global uncertainties. The 25 basis point reduction in the repo rate to 6.25%—the first cut in nearly five years—signals a decisive step toward supporting economic growth and consumption.”
He further acknowledged the RBI’s initiatives to enhance cybersecurity and financial fraud prevention, particularly through the introduction of Bank.in and Fin.in and the implementation of Additional Factor of Authentication (AFA).
Exclusive Comments from Faiz Askari, Founder and Editor, SMEStreet.in
Faiz Askari, a leading voice in the MSME sector, highlighted the significance of the rate cut for small businesses:
“The RBI’s decision to reduce the repo rate by 25 basis points is a welcome relief for MSMEs and startups. Lower borrowing costs will encourage entrepreneurship and business expansion, which is crucial for sustaining India’s economic growth. The focus on cybersecurity and digital banking will also enhance financial inclusion, ensuring that smaller businesses can confidently participate in the digital economy. This move will not only stimulate investment but also create more opportunities for job creation and economic resilience.”
Looking Ahead: Implications for the Indian Economy
The latest policy decision aligns with the Finance Ministry’s push for fiscal-monetary coordination. The rate cut is expected to:
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Encourage higher borrowing and investment
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Lower home loan and business loan rates
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Improve credit growth in housing, energy, and infrastructure sectors
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Enhance financial stability with improved cybersecurity measures
As India navigates a dynamic global economic landscape, the RBI’s proactive approach aims to foster economic growth, control inflation, and sustain financial resilience. With the repo rate at 6.25%, businesses and consumers alike can look forward to a more accommodative lending environment, reinforcing confidence in the economy’s future.