RBI's 0.25% repo rate cut to boost market sentiment, increase liquidity, and demand: CAIT

The Reserve Bank of India (RBI) on Friday lowered the repo rate by 25 basis points to 6.25 per cent, marking the first rate cut in five years. The move, aimed at boosting economic activity, was welcomed by Confederation of All India Traders (CAIT) National Secretary General Praveen Khandelwal, who termed it a growth-oriented step that will ease borrowing costs for businesses and consumers.

The RBI’s six-member Monetary Policy Committee (MPC) unanimously decided to reduce the key lending rate while maintaining a “neutral” stance to retain flexibility in responding to macroeconomic developments. The repo rate, which previously stood at 6.5 per cent, is the rate at which the RBI lends to commercial banks.

Khandelwal said that the inflation rate is projected to be 4.8 per cent for FY25 and 4.2 per cent for FY26, ensuring a balance between growth and price stability. He highlighted that lower EMIs on home and business loans would provide financial relief, increase disposable income, and boost consumer spending, ultimately improving market liquidity and encouraging business investments.

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He further stated that an expected increase in the income tax exemption limit to Rs 12 lakh in the upcoming budget would enhance public savings, further driving consumer spending and strengthening economic growth.

'Monetary policy in sync with fiscal consolidation'

Speaking at MPC meeting, RBI Governor Sanjay Malhotra said inflation had moderated and was expected to align further with the central bank’s target. He assured that RBI was committed to ensuring sufficient liquidity in the economy and would take measures to maintain durable liquidity to meet systemic requirements.

Malhotra also stressed that RBI was monitoring the rupee closely and taking steps to maintain currency stability. He projected that India’s economic growth momentum would pick up, with rural demand already showing signs of revival. However, he cautioned that uncertainties in global trade and climate change posed risks to economic growth.

The repo rate cut follows the Centre’s recent personal income tax reduction to stimulate consumption. The policy announcement also comes ahead of Budget 2025-26, where the finance minister has reaffirmed the government’s fiscal consolidation path, lowering the fiscal deficit target to 4.4 per cent of GDP from 4.8 per cent earlier.

This reduction in the fiscal deficit has decreased the government’s market borrowing needs, providing more space for the RBI to adopt a softer monetary policy to spur economic growth.