Business desk
6 June
Sandeep Dhand
Journalist and Research Analysist
In a significant move to support India’s economic growth, the Reserve Bank of India (RBI) on Friday reduced the key policy interest rate, known as the repo rate, by 0.5% to 5.5%. The decision comes amid easing inflation and global economic uncertainties. This reduction aims to make borrowing cheaper for businesses and individuals, thereby boosting spending and investment.
RBI Governor Sanjay Malhotra announced the decision after the bi-monthly meeting of the Monetary Policy Committee (MPC), which includes six members—three from the RBI and three nominated by the government. He stated, “The MPC has decided to reduce the repo rate by 0.50% to support domestic economic activities.”
The repo rate is the interest rate at which commercial banks borrow funds from the central bank to meet short-term needs. A cut in the repo rate generally leads to lower interest rates on loans, which means monthly EMIs on home, vehicle, and personal loans may come down.
This is the third rate cut by the RBI in this year, following two earlier cuts of 0.25% each in February and April. The central bank has taken this step to strike a balance between controlling inflation and supporting growth. Notably, the RBI has retained the economic growth forecast for the financial year 2025-26 at 6.5%, showing confidence in India’s recovery path.
At the same time, the inflation forecast for the current financial year has been lowered from 4% to 3.7%, indicating an improving price situation. This combination of lower inflation and steady growth outlook has given the RBI room to reduce rates and provide a push to the economy.
Experts believe this move will positively impact consumption and investments in the coming months.