RBI Lowers Interest Rates for the First Time in Nearly 5 Years to Stimulate Economy

The Monetary Policy Committee (MPC) has unanimously decided to decrease the primary rate by 25 basis points, from 6.5% to 6.25%, according to RBI Governor Sanjay Malhotra.

Mumbai: The RBI has dropped its benchmark repo rate for the first time in nearly five years to bolster the economy. The RBI Monetary Policy Committee (MPC) has unanimously decided to reduce the key rate by 25 basis points, from 6.5% to 6.25%, Sanjay Malhotra stated this morning in his first significant address since becoming RBI Governor in December.

The MPC, which consists of three RBI members and three external members, last cut the repo rate in May 2020 and has kept it steady for the past 11 policy meetings.

Mr Malhotra stated that the global economic outlook remains challenging, with the world economy growing below the historical norm. "High-frequency indicators are suggesting resilience in the global economy". The Indian economy is not immune to global headwinds, but it is still strong and resilient, he said.

He added that bond yields and the currency have risen in response to lower expectations for the amount and speed of rate cuts in the United States.

The RBI Governor stated that the real GDP growth rate for the fiscal year ending in March has been expected to be 6.4%. He also anticipated that real growth in the upcoming fiscal year would be 6.7% in Q1, 7% in Q2, 6.5% in Q3, and 6.5% in Q4.

Retail inflation is expected to be 4.8% this fiscal year, up from 4.4% in the previous quarter, according to Mr Malhotra, who predicts that core inflation will climb but stay modest. He indicated that food inflation will soften.

The RBI Governor stated that bank liquidity buffers are sufficient and that proactive actions will be taken to ensure the system's orderly liquidity conditions. Banks have strong returns on assets and equity, he noted.