Pic: RBI Governor Sanjay Malhotra
But MPC remains cautious over global volatility, uncertainty of trade policies and climate change.
By B N KUMAR
MUMBAI, Feb 7 (The CONNECT) -With inflationary pressure easing, reserve Bank of India (RBI) has decided to reduce the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 per cent with immediate effect for the first time in five years.
The repo rate – at which the RBI lends money to banks – has unchanged for the last 11 consecutive meetings of the Monetary Policy Committee (MPC) primarily owing to high inflation.
But the latest meeting – the 53rd one – held from February 5 to 7, 2025 under the chairmanship of RBI Governor Sanjay Malhotra the MPC unanimously voted to reduce the policy repo rate by 25 basis points to 6.25 per cent.
Consequently, the standing deposit facility (SDF) rate shall stand adjusted to 6 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 6.5 per cent
The committee noted that inflation has declined. Supported by a favourable outlook on food and continuing transmission of past monetary policy actions, it is expected to further moderate in 2025-26, gradually aligning with the target, it said.
The MPC also noted that though growth is expected to recover from the low of Q2:2024-25, it is much below that of last year. These growth-inflation dynamics open up policy space for the MPC to support growth, while remaining focussed on aligning inflation with the target.
RBI will continue with the neutral monetary policy stance and remain unambiguously focussed on a durable alignment of inflation with the target, while supporting growth.
The MPC has cautioned that excessive volatility in global financial markets and continued uncertainties about global trade policies coupled with adverse weather events pose risks to the growth and inflation outlook.
This calls for the MPC to remain watchful. Accordingly, the MPC unanimously voted to continue with a neutral stance. This will provide MPC the flexibility to respond to the evolving macroeconomic environment.
Headline inflation softened sequentially in November-December 2024 from its recent peak of 6.2 per cent in October. The moderation in food inflation, as vegetable price inflation came off from its October high, drove the decline in headline inflation. Core inflation remained subdued across goods and services components and the fuel group continued to be in deflation.
