The Reserve Bank of India (RBI) has announced a cut in its key repo rate by 25 basis points to 6.25%, marking the first rate cut in nearly five years. The decision, which was made at the conclusion of the Monetary Policy Committee (MPC) meeting held from February 5-7, is expected to bring down loan EMIs and provide relief to borrowers.
RBI governor Sanjay Malhotra, who chaired his first MPC meeting, announced the widely anticipated move on Friday morning. The six-member committee, which includes three RBI members and three external members, voted unanimously in favor of reducing the repo rate after keeping it unchanged for eleven consecutive meetings.
“The Monetary Policy Committee unanimously decided to reduce the policy rate by 25 basis points from 6.5% to 6.25%,” said RBI governor Malhotra in a presser after the MPC meet.

“Inflation targeting has served the Indian economy very well. Average inflation has remained lower since introduction of monetary policy framework,” said the RBI governor.
This marks the first rate reduction since May 2020 and is aimed at supporting economic growth, which is projected to slow down to a four-year low. The move follows the central government’s recent budget announcement that included personal tax rate cuts to boost consumer spending and economic activity.
The central bank has been facing a delicate balancing act between stimulating economic growth and managing inflation. While the economy is expected to expand between 6.3%-6.8% in the coming fiscal year, it remains below the 8.2% growth recorded in fiscal 2024. Inflation, however, has remained above the RBI’s medium-term target of 4% for most of the past year, further complicating the central bank’s policy decisions.
Despite the slowdown in economic growth, the rupee has been under pressure, prompting the RBI to intervene through dollar selling to stabilize the currency. Economists have been divided on the timing of the rate cut, as core inflation remains below 4%, while headline inflation remains a concern.
The RBI has also been focusing on ensuring adequate liquidity in the banking system. In late January, the central bank introduced measures to inject 1.5 trillion rupees ($17.22 billion) into the financial sector. Investors are now looking forward to additional steps from the RBI, including a potential reduction in the cash reserve ratio to further support liquidity.
The government has projected a full-year fiscal deficit of 4.8% of GDP for the current financial year, with an aim to reduce it to 4.4% in 2025-26. The latest monetary policy decision is expected to complement fiscal measures in driving economic recovery and ensuring financial stability in the coming months.
With the RBI’s rate cut, borrowers can expect lower equated monthly installments (EMIs) on home, auto, and other loans, providing some relief amid ongoing economic uncertainties. However, further policy adjustments will depend on inflation trends and global economic developments in the months ahead.
(With inputs from agencies)