RBI MPC Meeting 2025: RBI cuts lending rate by 25 basis points to 6.25%

After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the Monetary Policy Committee (MPC) decided unanimously to reduce the policy rate by 25 basis points to 6.25% from 6.5%. One basis point equals 0.01%. Consequently, the Standing Deposit Facility rate will be at 6%.

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RBI Governor Sanjay Malhotra, who is chairing his first MPC announced the decision of the six-member panel on Friday (February 7, 2025) morning, amid widespread expectations of 25 basis points reduction in interest rate after a gap of nearly five years.

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

The flexible inflation targeting framework has served the economy very well, especially in the pandemic-affected period, the RBI Governor said. “The interest of the economy demands financial stability and consumer protection and our mandate at the RBI is to ensure both of them,” he said.

Also read: RBI projects FY26 inflation at 4.2%, down from 4.8% estimate in 2024-25

We recognise that just like there are no free lunches, that regulations for enhancing financial stability and customer protection also come with costs. We will strive to strike a right balance between efficiency and regulation, the Governor added.

“Coming to the global economy, the backdrop remains challenging and is growing below the historic average. Progress on global disinflation is falling, hindered by services prices pressures,” Mr. Malhotra said.

The U.S. Dollar has strengthened, the bond yields have hardened, and emerging markets have faced large outflows of capital, he said, saying there is an elevated uncertainty which has exacerbated volatility.

The Indian economy, though continuing to remain strong and resilient, also did not remain immune to these global challenges with the rupee coming under pressure, the Governor said, at the meeting.

Also read: RBI MPC meeting 2025: RBI projects 6.7% growth for FY’26 on better Rabi harvest, tax relief by govt

MPC on Inflation

Inflation has been declining and is expected to moderate in 2025-26 further, gradually aligning with the target (4%), the RBI Governor said. “At the same time, the MPC felt that excessive volatility in global financial markets and continued uncertainty about global trade policy along with adverse weather events, could pose risks to growth. That’s why the MPC has decided to retain its neutral stance,” he noted.

Real GDP growth for this year is estimated at 6.4% by the NSO. Going forward, economic activity is expected to improve in the coming year, he added.

Also read:RBI Monetary Policy 2025 key highlights

Agriculture activity remains upbeat, he said. Manufacturing is expected to revive gradually in the second half of this year and thereon. Early Q3 results indicate a mild recovery in manufacturing. Business expectations remain upbeat. Services activity continues to be resilient, though the Services PMI has declined, the Governor said.

Urban demand remains subdued. Going forward, improving employment conditions, tax relief in the Union Budget, moderating inflation will boost household consumption. Higher capacity utilisation levels, robust business expectations and government policy support should help investments, Mr. Malhotra said.

Global headwinds however pose uncertainty to the outlook with downward risks, the Governor noted. The RBI expects real GDP growth in the coming year at 6.7%, with the risks evenly balanced, he said.

“Coming now to inflation, headline price rise, after moving above the upper tolerance band in October, has registered a sequential moderation in November and December. Going ahead, food inflation pressures, absence of any supply shocks, should ease due to a favourable Rabi crop prospects, he said.

Core inflation is expected to rise but remains moderate, he said. “But there are upside risks to the inflation trajectory. CPI inflation for this year is projected at 4.8%, with the current quarter at 4.4%. Assuming a normal monsoon, the inflation for 2025-26 is projected at 4.2% with the risks evenly balanced,” he added.

“India’s current account deficit moderated in Q2 of this year. According to the World Bank, India continues to remain the largest remittance recipient globally in 2024,” he said. The CAD for this year is expected to remain well within the sustainable level. As of January 31, 2025, India’s foreign exchange reserves were at $630-plus billion dollars, which gives us an export cover of over 10 months. The RBI’s exchange rate policy has remained very consistent. Our interventions in the forex market focus on smoothening excessive and disruptive volatility, and does not target any level, he said.

After remaining in surplus till July 2024, system liquidity did turn into a deficit in December and January, he said. The RBI is committed to provide sufficient systemic liquidity, he added. “We will continue to monitor the evolving liquidity and financial market conditions and proactively take appropriate measures to ensure orderly liquidity condition as may be required for the system. Not just overnight liquidity, but also durable liquidity to meet the requirements for the system,” the Governor noted.

The Reserve Bank of India (RBI) had last reduced the repo rate by 40 basis points to 4% in May 2020 to help the economy tide over the crisis following the outbreak of the Covid pandemic and subsequent lock down.

But in May 2022 the central bank started a rate hike cycle in view of the Russia-Ukraine war and paused it only in May 2023.

The three-day meeting of the MPC started on Wednesday (February 5, 2025).