India’s central bank, the Reserve Bank of India, on Friday announced a 25 basis points (bps) cut in the repo rate – the rate at which the RBI lends to other banks – to 6.25 per cent.
This is the first-rate cut initiated by the RBI in five years, the last one being in May 2020.
The repo rate – indicating the lending rate – has remained at 6.5 per cent for some time now. The move comes barely a week after India’s latest budget announced a cut in personal income tax, in an apparent move to boost consumption.
The central bank’s six-member Monetary Policy Committee (MPC), in a unanimous decision, lowered the repo rate in a bid to stimulate economic activity by making borrowing cheaper, thereby encouraging spending and investment.
The MPC, however, decided to continue with its “neutral” stance for the economy, which RBI Governor Sanjay Malhotra said would provide flexibility to respond to the evolving macroeconomic environment.
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