RBI Cuts Repo Rate to 6% and Switches to Accommodative Stance Amid Global Economic Headwinds
In its first monetary policy review of FY2025-26, the Reserve Bank of India (RBI) has announced a 25 basis point reduction in the repo rate, bringing it down from 6.25% to 6%. This marks the second consecutive cut and aligns with the central bank’s aim to support economic growth amid mounting global challenges.
The announcement came after a three-day meeting of the Monetary Policy Committee (MPC), chaired by RBI Governor Sanjay Malhotra, who noted that the committee reached this decision unanimously following a comprehensive evaluation of current economic indicators.
Key Highlights from RBI’s April 2025 Monetary Policy Review
1. Policy Repo Rate Trimmed to 6%
The MPC opted for a 25 bps reduction in the benchmark interest rate, bringing it to 6.00%. This move is designed to inject further momentum into the Indian economy amidst slowing global trade.
“After thorough assessment of financial and macroeconomic developments, the MPC unanimously voted to lower the policy repo rate to 6% with immediate effect,” said Governor Malhotra.
2. Shift to Accommodative Monetary Stance
RBI has moved its policy stance from ‘neutral’ to ‘accommodative’, indicating that future actions will likely include either maintaining status quo or further rate reductions, unless unforeseen economic shocks arise.
“This strategic shift allows greater flexibility to support growth, especially when inflation remains under control,” Malhotra added.
3. GDP Forecast for FY26 Revised to 6.5%
The central bank lowered India’s GDP projection for FY2025-26 from 6.7% to 6.5%, attributing the revision to international trade tariffs and geopolitical uncertainty.
Quarter-wise projections:
- Q1: 6.5%
- Q2: 6.7%
- Q3: 6.6%
- Q4: 6.3%
4. Inflation Target Adjusted to 4%
In a positive shift, the inflation outlook for FY26 has been lowered to 4%, down from the earlier estimate of 4.2%, showcasing improved price stability expectations.
Quarter-wise breakdown:
- Q1: 3.6%
- Q2: 3.9%
- Q3: 3.8%
- Q4: 4.4%
5. Updated Lending Rates Under LAF
- Standing Deposit Facility (SDF) rate set at 5.75%
- Marginal Standing Facility (MSF) and Bank Rate adjusted to 6.25%
6. UPI Transaction Cap Raised for P2M Payments
RBI has authorized the National Payments Corporation of India (NPCI) to increase UPI limits for person-to-merchant transactions, boosting ease of use in digital payments.
7. Gold Loan Guidelines to Be Harmonized
The RBI plans to standardize rules across all regulated entities offering loans against gold jewellery. A new regulatory framework will focus on risk alignment and fair lending practices.
8. Expanded Scope for Co-Lending
A new co-lending framework will soon be introduced, extending the guidelines beyond traditional bank-NBFC collaborations to promote inclusive financing.
9. India’s Forex Reserves at $676.3 Billion
As of April 4, 2025, India’s foreign exchange reserves have touched $676.3 billion, offering 11 months of import cover, indicating strong external sector resilience.
10. Banking Liquidity Stays Healthy
Governor Malhotra emphasized that the liquidity buffer in the financial system remains well above the regulatory threshold, and the RBI will continue to monitor and manage liquidity proactively.
“We are committed to ensuring sufficient systemic liquidity and will act as necessary,” he stated.