Pankaj Chadha

My dear fellow exporters,

The Monetary Policy Committee (MPC) of RBI during its 55th meeting held from 4th to 6th June 2025 reduced the policy repo rate somewhat aggressively by 50 bps to 5.50 percent from 6.0 percent. As a consequence, the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) shall stand adjusted to 5.25 percent and the marginal standing facility (MSF) rate and the Bank Rate to 5.75 percent. Softening of repo rate means cheaper lending rates by commercial banks and boosting of overall economic and business sentiment. RBI has also changed its stance to ‘neutral’ from ‘accommodative’.

 

This reduction in policy rate by RBI is driven by taming of headline CPI inflation over the last six months that moderated below the threshold level of 4 percent. CPI inflation was recorded at nearly six-year low of 3.2 percent year-on-year in April 2025. With a moderated outlook for inflation over the mid-term, it was imperative for the financial regulatory authority to stimulate domestic private consumption and investment through policy instruments in order to ensure a higher and sustained growth momentum. However, as the repo rate has been reduced by 1 percentage point since February 2025, the scope for further easing of monetary policy to support growth becomes limited.