Monetary Policy Committee (MPC) of RBI has cut repo rate by 25 bps to 6.25%

Monetary Policy Committee (MPC) of RBI has cut repo rate by 25 bps to 6.25%

The Reserve Bank of India’s Monetary Policy Committee (MPC) has reduced the repo rate by 25 basis points, bringing it down to 6.25%. This marks the first rate cut under the liquidity adjustment facility (LAF) in nearly five years.

Other key decisions:

• The MPC has opted to maintain a 'neutral' stance on monetary policy, allowing flexibility in adjusting policy rates based on the evolving economic landscape.
• The GDP growth forecast for FY '26 is projected at 6.7%.
• Food inflation pressures are expected to ease significantly, while core inflation is likely to rise but remain moderate.

Rationale for the MPC's decisions:

• Inflation has decreased, and economic growth is expected to recover from the low seen in Q2 of 2024-25.
• The global financial markets remain volatile, and there is ongoing uncertainty surrounding global trade policies and the impact of adverse weather conditions.

About the Liquidity Adjustment Facility (LAF): LAF is a monetary policy tool used by central banks to control liquidity in the banking system. It includes both the repo and reverse repo rates. The repo rate is the interest rate at which the central bank lends to banks, while the reverse repo rate is the rate at which banks can deposit their surplus funds with the central bank.

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