RBI Cuts Repo Rate After 5 Years: What’s Next for India’s Economy?

Mumbai, India: In a significant move, the Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points to 6.25%, marking its first rate cut in nearly five years. This move aims to balance inflation control while promoting economic growth amid challenging conditions. The rate cut was announced during the first Monetary Policy Committee (MPC) meeting led by RBI Governor Sanjay Malhotra, who emphasized the central bank’s commitment to managing inflation targets while supporting growth.

Impact on the Economy and Markets
Despite the rate cut, stock markets saw a drop, with the BSE Sensex fluctuating over 600 points and the Nifty 50 also in the red. Analysts suggest that the lack of market optimism is due to ongoing concerns about global trade and fiscal challenges. However, experts are hopeful that the rate reduction will encourage borrowing, boost liquidity, and stimulate consumption across sectors.

Sectors Likely to Benefit
Key sectors such as banking, auto, FMCG, consumer durables, manufacturing, and NBFCs are expected to benefit from this move. The rate cut is likely to enhance credit demand, improving net interest margins for financial institutions. Additionally, lower interest rates could stimulate demand in housing and consumer goods, especially in the premium category.

Future Rate Cuts?
While the RBI’s growth projection for FY25 has been revised downward to 6.4%, analysts suggest that another rate cut is possible, with some forecasting a 25bps cut in April. However, concerns over global inflation and the RBI's need to support the rupee could limit future reductions, as warned by experts.

Conclusion
The RBI’s decision to lower the repo rate comes at a crucial time for India’s economy, seeking to stimulate growth and consumption. The rate cut could set the stage for further actions, depending on domestic and global economic conditions.