Reducing its main repo rate by 25 basis points (bps) for the first time in almost five years marks a major action by the Reserve Bank of India (RBI). This choice is a part of the RBI’s attempt to boost economic development in a difficult local and worldwide economic scene. Announced by RBI Governor Sanjay Malhotra, the repo rate has dropped from 6.5% to 6.25%. This morning during Mr. Malhotra’s first significant speech following his December 2024 RBI Governor appointment takeover.
A Historic Rate Cut
This action is momentous since the RBI has lowered interest rates for the first time in five years. May 2020 saw the latest drop in the repo rate since the COVID-19 epidemic badly affected the economy. The RBI has maintained the rate unaltered in its next policy sessions since then, giving economic stability first priority over sharp rate reductions. Reducing rates today shows a change in policy as the RBI adjusts to changing economic circumstances.
World Economic Difficulties and India's Fortitude
Mr. Malhotra noted in his speech that there are still major difficulties confronting the state of the economy. With high-frequency signs pointing to some degree of resilience, he observed that the world economy is declining below historical averages. The RBI Governor underlined, meanwhile, that the Indian economy is strong and resilient even if it is not impervious to world challenges. India keeps showing solid economic performance in spite of global uncertainty, mostly due to strong local demand, good government policies, and more private sector activity.
The governor also mentioned the changing global monetary policy posture, especially with relation to the United States. Rising global bond yields and the value of the US currency have resulted from declining expectations on the scale and speed of rate reduction in the US, therefore exerting more pressure on developing nations like India. The RBI, however, thinks that these outside obstacles won’t compromise the direction of national development.
Growth and Inflation Outlook
The RBI has changed its estimates of India’s real GDP growth ahead. The central bank projects a growth rate of 6.4% for the present financial year, which runs until March 2025. The RBI projects a somewhat higher rate of 6.7% in the first quarter (Q1), followed by 7% in the second quarter (Q2), then 6.5% in the third (Q3) and fourth (Q4). These forecasts show a consistent comeback in spite of continuous global uncertainty.
Regarding inflation, Mr. Malhotra said that retail inflation for the current financial year is expected to be 4.8%, slightly declining to 4.4% in the last quarter of the year. He also said that although core inflation—that excludes erratic fuel and food prices—may increase, it is projected to remain somewhat mild. The RBI Governor also expressed hope that government actions and better supply-side circumstances would help moderate food inflation, which had been a worry in earlier months.
Preventive Action for Liquidity Control
In his speech, Mr. Malhotra informed the audience that the RBI keeps strict observation over the financial sector, especially with relation to banks liquidity. He said the RBI is dedicated to acting early to guarantee that liquidity conditions stay orderly and India’s banking industry has enough liquidity buffers to withstand any temporary disruptions. He underlined that the strong return on assets and equity in the banking system shows a strong and resilient financial sector ready to help to support economic development.
Issues with cybersecurity and digital frauds
Mr. Malhotra also discussed the growing worry about digital scams, which, given the rising digitalization of financial services, have become a main problem. The rise in cybercrime in recent years calls for a quick and coordinated response from all players engaged in the financial ecosystem, including banks, authorities, and technology companies, he said. To further safeguard consumers and guarantee the integrity of the digital financial system, the RBI Governor advised banks to make investments in enhancing their preventive detecting systems. To handle the growing risk of online fraud, he advocated more of a focus on cybersecurity issues.