The Reserve Bank of India’s (RBI) Monetary Policy Committee, on Wednesday, April 9, 2025, slashed the repo rate by 25 basis points to 6%, changing the stance to ‘accommodative’ from ‘neutral’, as the monetary authority acknowledged the decline in inflation while also considering the adverse effects of the challenging global environment on the country’s growth outlook.
“The MPC noted that inflation is currently below the target, supported by a sharp fall in food inflation. Moreover, there is a decisive improvement in the inflation outlook. As per projections, there is now a greater confidence of a durable alignment of headline inflation with the target of 4% over a 12-month horizon. On the other hand, impeded by a challenging global environment, growth is still on a recovery path after an underwhelming performance in the first half of 2024-25. In such challenging global economic conditions, the benign inflation outlook and moderate growth demand that the MPC continues to support growth,” said RBI Governor Sanjay Malhotra.
Consequently, the Standing Deposit Facility (SDF) rate will be 5.75% and Marginal Standing Facility (MSF) and Bank rate will be 6.25%.
All six members of the RBI-led Monetary Policy Committee (MPC) voted for decreasing the repo rate by 25 basis points.
The Governor emphasized that global trade uncertainties are posing significant challenges to growth in India via multiple channels. Investment and spending decisions by businesses and households are being dampened, while trade frictions are negatively impacting domestic growth through reduced global demand and negative effects on net exports.
Though quantifying these adverse impacts remains difficult due to various unknowns—including the effects of relative tariffs, elasticities of export and import demand, and potential government policy responses such as the proposed Foreign Trade Agreement with the USA—the overall outlook suggests considerable headwinds to growth.
The inflation outlook for the country presents two-sided risks in this uncertain environment. On one hand, global uncertainties could lead to currency pressures and increased imported inflation. Conversely, a global growth slowdown might further soften commodity and crude oil prices, placing downward pressure on inflation.
Despite projections of 6.5% real GDP growth for 2024-25 and promising prospects for agriculture, manufacturing, and services sectors, global trade disruptions remain a significant downside risk, even as domestic consumption and investment activity show encouraging signs of improvement.
Keeping all this in view, the real GDP growth is projected to be 6.5% for FY26 with Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6% and Q4 at 6.3%. The growth projection for the current year has been revised down by 20 basis points to 6.5% due to heightened global volatility and ongoing trade and policy uncertainties, despite balanced risks around the baseline outlook.
On the inflation front, the governor noted that the recent data shows a significant moderation in headline inflation during January-February 2025, driven primarily by a sharp correction in food inflation. The outlook has improved considerably with uncertainties about rabi crops largely resolved, as second advance estimates indicate record wheat production and higher output of key pulses compared to last year. Combined with strong kharif arrivals, these factors are expected to support a sustained softening of food inflation.
Consumer confidence is also improving, with inflation expectations showing a marked decline for both three-month and one-year horizons in the latest survey, which should help anchor expectations going forward. The recent fall in crude oil prices further brightens the inflation outlook, though potential risks remain from global market uncertainties and the possibility of adverse weather-related supply disruptions.
“Taking all these factors into consideration, and assuming a normal monsoon, CPI inflation for the financial year 2025-26 is projected at 4.0%, with Q1 at 3.6%; Q2 at 3.9%; Q3 at 3.8%; and Q4 at 4.4%. The risks are evenly balanced,” added Governor Malhotra.
India's services exports maintained strong performance in January-February 2025, with software, business, and transportation services leading the growth. The substantial surplus from net services and remittance receipts is expected to partially offset the trade deficit, keeping the Current Account Deficit (CAD) for both 2024-25 and 2025-26 well within sustainable levels. This resilience in the services sector continues to be a key stabilizing factor for India's external position.
On the capital flows front, gross Foreign Direct Investment (FDI) remained robust from April 2024 to January 2025, reflecting confidence in India's macroeconomic fundamentals, though net FDI moderated due to increased repatriations and outward investments. Foreign Portfolio Investment (FPI) showed modest net inflows of 1.7 billion US dollars during 2024-25, with debt inflows compensating for equity outflows. Meanwhile, both external commercial borrowings and non-resident deposits recorded higher net inflows compared to the previous year. With foreign exchange reserves standing at 676.3 billion US dollars as of April 4, 2025 (providing approximately 11 months of import cover), India's external sector demonstrates continued resilience across key indicators.
System liquidity experienced significant fluctuations in early 2025, starting with a deficit in January that peaked at ₹3.1 lakh crores on January 23, 2025. However, through a series of measures that injected approximately ₹6.9 lakh crores into the system, coupled with increased government spending in late March, the situation improved dramatically. The deficit gradually decreased through February-March, eventually transforming into a surplus of ₹1.5 lakh crores by April 7, 2025.
These liquidity improvements were reflected in market indicators, as the weighted average call rate (WACR) softened and remained close to the repo rate since the previous policy meeting. Additionally, spreads of 3-month commercial paper (CP) and certificate of deposit (CD) rates over 91-day Treasury bill rate narrowed from the second half of March, further confirming improved liquidity conditions. The Reserve Bank has reaffirmed its commitment to providing sufficient system liquidity and will continue monitoring market conditions to implement appropriate measures as needed.
The RBI's Monetary Policy Committee, led by Governor Sanjay Malhotra, cut the repo rate by 25 basis points to 6% in April 2025, the second consecutive rate cut, accompanied by a change of stance to ‘accommodative’ from ‘neutral’. This decision, unanimously supported by all six MPC members, comes as inflation has moderated during the January-February 2025 and growth may see a negative impact due to the global economic turmoil triggered by the recently announced tariffs by the US.
The minutes of the MPC’s meeting will be published on April 23, 2025. Also, the next meeting of the MPC is scheduled for June 4-6, 2025.
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