RBI Cuts Repo Rate by 25 Basis Points to Support Economic Growth

The Reserve Bank of India on Friday cut the benchmark repo rate by 25 basis points to 6.25%, marking the first rate cut in over two years. The decision was unanimous, with all six members of the Monetary Policy Committee (MPC) voting in favor of the reduction. The RBI also changed its monetary policy stance from 'withdrawal of accommodation' to 'neutral'.

Rationale Behind the Cut

RBI Governor cited moderating inflation, which has remained within the 4% target for four consecutive months, and the need to support investment-led growth as key factors. Core inflation has fallen to a three-year low of 3.2%, giving the central bank room to ease without risking price stability.

The cut is expected to reduce EMIs on home loans by approximately Rs 500-700 per lakh, providing relief to millions of borrowers. Banks are expected to transmit the full rate cut to lending rates within the next quarter, as the banking system has adequate liquidity.

"With inflation well anchored and global uncertainties moderating, this is the right time to provide a growth impulse through monetary easing. We expect this to support the capex cycle and housing demand," the RBI Governor said during the post-policy press conference.

Markets reacted positively, with the Nifty Bank index rising 1.5% and bond yields falling 8 basis points. Economists expect another 25-50 basis points of cuts over the next two MPC meetings, bringing the repo rate to 5.75-6.00% by the end of 2026. The real estate sector, which has been lobbying for rate cuts, welcomed the decision enthusiastically.