India Central Bank reduces the policy rate for the first time in almost five years; 6.7% plug GDP growth

The India Reserve Bank has reduced its key interest rate for the first time in almost five years, since cooling inflation has offered space to stimulate the deceleration economy.

The monetary policy committee decided to cut the repository rate at 25 basic points to 6.25%, said RBI governor Sanjay Malhotra in a live speech on Friday.

The rate cut was widely expected and marked the first RBI interest rate cut since May 2020, when the country fought against the recession inflicted by the pandemic.

The Central Bank established the real GDP growth forecast at 6.7% for the fiscal year of 2026, while the inflation rate is 4.2%.

The reference repo rate has remained stable at 6.5% during the last two years, since the internal inflation rate remained above the medium -term target of the central bank of 4%.

After a peak in OctoberIndian consumer prices inflation has decreased, falling within the tolerance limit of the central bank of 6%, enter to 5.22% in December and 5.48% in November.

The Indian government has been constantly lowering its real GDP forecasts throughout the year, after economic growth Lost expectations For a great margin in the quarter ended in September, when it grew by 5.4%, its slower expansion in almost two years.

The last projection last month cut growth estimates for The current fiscal year at 6.4% of 7.2% in October, It is worse in four years, while the inflation projection was collected to 4.8% versus 4.5% before.

With the rupee hitting minimal records against backback, any cut to the bank’s policy rate could generate an additional increase in internal inflation, exerting more pressure on the currency and probably triggering capital outflows.

RBI has acted to implement substantial interventions In the currency market to help cushion a possible sudden outlet of foreign capital and avoid any pronounced fall in the currency.

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