Mumbai: The Reserve Bank of India (RBI) has lowered its growth forecast for FY25 to 6.4%, down from the 6.6% projection made in its December 2024 financial stability report. However, the central bank remains optimistic about the country’s economic outlook, forecasting a 6.7% growth rate for FY26.
Additionally, the RBI projects inflation to average 4.2% in FY26, maintaining it within the targeted range of 2-6%.
Key Highlights from RBI’s Monetary Policy
- GDP growth forecast for FY25: Revised down to 6.4%
- GDP growth forecast for FY26: Projected at 6.7%
- Inflation forecast for FY26: 4.2% (within the 2-6% target range)
- Repo rate cut: Reduced by 25 basis points to 6.25%
Governor’s Statement on Economic Outlook
In his maiden monetary policy statement, RBI Governor Sanjay Malhotra highlighted factors that are expected to drive economic growth and stability. He pointed out that improving employment conditions, tax relief in the Budget, moderating inflation, and healthy agricultural activity should support household consumption. However, he cautioned that government consumption expenditure is likely to remain modest.
Governor Malhotra further emphasized that higher capacity utilization levels, robust business expectations, and continued government policy support should provide a boost to fixed investment growth. Additionally, services exports are expected to remain strong, contributing positively to overall economic expansion.
Monetary Policy Committee (MPC) Decision
The Monetary Policy Committee (MPC), in its latest meeting on Friday, decided unanimously to reduce the repo rate by 25 basis points, bringing it down to 6.25%. This move aligns with market expectations and aims to provide additional support to economic activity while keeping inflation under control.
The repo rate cut is expected to lower borrowing costs, encouraging investments and consumer spending. The decision comes as the RBI balances economic growth with inflation control amid evolving global and domestic financial conditions.
Implications of the Repo Rate Cut
- Lower Borrowing Costs: Businesses and individuals could benefit from reduced interest rates on loans, boosting investments and consumption.
- Stimulus for Growth: The move is expected to encourage economic expansion by making credit more affordable.
- Impact on Inflation: The RBI aims to maintain inflation within the target range, ensuring price stability.
- Boost for Fixed Investments: With a favorable policy environment, investment activity in infrastructure and other sectors is likely to gain momentum.
Market Reactions and Future Outlook
Market analysts welcomed the repo rate cut, citing it as a well-timed decision to support economic growth while keeping inflation in check. The focus remains on how global economic conditions, domestic demand trends, and government policies will shape the growth trajectory in the coming months.
With the RBI projecting a stronger 6.7% growth in FY26, the central bank remains confident in India’s economic resilience. Going forward, economic indicators such as employment trends, inflation data, and investment flows will be crucial in determining the success of the RBI’s policy measures.
Conclusion The RBI’s latest monetary policy decision, including the repo rate cut and revised growth projections, reflects a strategic approach to balance growth and inflation. As the Indian economy navigates global and domestic challenges, the central bank’s policies will play a critical role in shaping economic momentum for FY25 and beyond.
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