RBI February 2025 MPC outcome: Repo rate slashed to 6.25%, 'neutral' stance continues

The Reserve Bank of India (RBI) monetary policy committee- headed by newly appointed Governor Sanjay Malhotra on expected lines announced its first repo rate cut in almost 5 years on Friday to 6.25 per cent from the earlier 6.5 per cent. During the meeting that was held between February 5 and 7, all the six MPC members unanimously voted to slash the key policy rate. 80 per cent of the participants in the Zee Business poll expected the RBI to reduce key policy rate by 25 basis points in its last policy review of the fiscal year 2024-25.

The repo rate, or repurchase rate, is the interest rate at which the Reserve Bank of India (RBI) lends funds to commercial banks in exchange for securities. 

The MPC also unanimously voted to keep the policy stance 'neutral'.  A "neutral" stance will give the RBI flexibility to respond to the environment around, said the governor.  A ‘neutral stance’ suggests that the central bank can resort to either cut or increase rate and is adopted typically in a scenario when the priority of inflation and growth is equal.

The RBI monetary policy decision comes days after the Union Budget 2025, where Finance Minister Nirmala Sitharaman announced key tax changes, aimed at spurring consumption and reviving economic growth at the same time.

Announcing the rate cut, the new governor said that the global economic backdrop remains challenging. Also, he added that "progress in global disinflation is stalling."

The domestic rate-setting panel has kept the repo rate unchanged for 11 consecutive meetings after raising it by 250 bps between May 2022 and February 2023. The last rate cut was in May 2020, during the Covid-19 pandemic.