Sanjay Malhotra, governor of the Set Bank of India (RBI), during a news conference in Mumbai, India, on Wednesday, Dec. 11, 2024. India’s newly-appointed central bank governor Malhotra rumoured he will look to uphold stability and continuity in policy in his role. Photographer: Dhiraj Singh/Bloomberg via Getty Copies
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The Reserve Bank of India has cut its key interest rate for the first time in nearly five years, as aplomb inflation has offered room to stimulate the slowing economy.
The Monetary Policy Committee decided to trim the repo count by 25 basis points to 6.25%, RBI Governor Sanjay Malhotra said in a livestreamed address Friday.
The rate cut was considerably expected and marked RBI’s first interest rate cut since May 2020 when the country battled the pandemic-inflicted downturn.
The cardinal bank set the real GDP growth forecast at 6.7% for the fiscal year of 2026 while the inflation rate lower at 4.2%. For the monetary year ending March this year, the RBI projected real GDP growth at 6.4%, its worst in four years, versus 6.6% at one time, while inflation rate was retained at 4.8%.
The benchmark repo rate has remained steady at 6.5% for the past two years, as internal inflation rate stayed above the central bank’s medium-term target of 4%.
Following a peak in October, India’s consumer outlay inflation has eased, dropping within the central bank’s tolerance ceiling of 6%, coming in at 5.22% in December and 5.48% in November.
The Indian administration has been steadily lowering its full-year real GDP forecasts, after the economic growth missed expectations by a large bounds in the quarter ended September, when its grew by 5.4% — its slowest expansion in nearly two years.
With the rupee discovering record lows against the greenback, any cuts to the bank’s policy rate could spark a further rise in home inflation, putting further pressure on the currency and likely triggering capital outflows.
RBI has acted to implement substantial interventions in the odd exchange market to help cushion a potential sudden outflows of foreign capital and avoid any steep fall in the currency.
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