RBI cuts repo rate by 0.25 pc, first time in nearly 5 years; Loan EMIs likely to come down

New Delhi: Amid easing inflation pressure, the Reserve Bank of India (RBI)'s Monetary Policy Committee (MPC) on Friday decided to cut policy repo rate by 0.25% to 6.25% raising hopes of relief in loan EMIs.

The RBI has cut the key interest rate in nearly five years.

“After detailed assessment of the evolving macroeconomic and financial developments and the economic outlook, the Monetary Policy Committee (MPC) decided unanimously to reduce policy repo rate by 25 basis points from 6.5% to 6.25%," said RBI Governor Sanjay Malhotra in his maiden monetary policy statement.

The MPC also decided unanimously to continue with the neutral stance and remain unambiguously focussed on a durable alignment of inflation with the target while supporting growth.

On the rationale for the decision, the RBI Governor said that the MPC noted that the inflation has declined supported by favourable outlook on food and continuing transmission of past monetary policy actions.

"It is expected to further moderate in 2025-26 gradually aligning with the target. The MPC also noted that though growth is expected to recover from the low of Q2FY25 it is much below that of last year. Last year it was 8.2%," Malhotra said.

Retail headline inflation, as measured by Consumer Price Index (CPI), has softened from 5.4% in FY24 to 4.9% in April–December 2024. While the average inflation in FY25 has trended downward, monthly volatility in food prices and a select few commodities have been responsible for CPI inflation printing towards the upper side of the RBI's tolerance band of 4 (+/-) 2 per cent.