The RBI’s Monetary Policy Committee (MPC) cut the repo rate by 25 basis
points
(bps) from its previous level to 6.25% .
This is the first monetary policy review under RBI Governor Sanjay
Malhotra , who
emphasized a balanced approach—supporting growth while aligning inflation with
target levels.
What is Repo Rate?
The repo rate is the rate at which the RBI lends money to commercial banks.
1 basis point equals 0.01%.
MPC reduced the Repo Rate in the hope that inflation will moderate to 4.4%
in the
current quarter and 4.2% for 2025-26 .
The cut aims to support a slowing economy by making credit cheaper—potentially
boosting sectors like housing, automotive, and consumer loans.
What is Reverse Repo Rate?
The Reverse Repo Rate is the rate at which the Reserve
Bank of India (RBI) borrows
money from commercial banks.
It is a monetary policy tool used to absorb excess liquidity
from the banking
system, thereby controlling inflation and stabilizing the economy.
At present the reverse repo rate in India was 3.35%.
Statutory Liquidity Ratio
The Statutory Liquidity Ratio (SLR) is the minimum percentage of
a commercial
bank’s Net Demand and Time Liabilities (NDTL) that it must
maintain in the form of
liquid assets before offering credit to customers.
These assets include:
Cash
Gold
Approved government securities (G-Secs, T-bills, etc.)
At present the Statutory Liquidity Ratio (SLR) in India was 18%. The Reserve Bank
of India (RBI) has the power to increase the SLR rate to a maximum of 40%.
Cash Reserve Ratio
Cash Reserve Ratio (CRR) is the percentage of a bank’s
Net
Demand and Time
Liabilities (NDTL) that it must maintain as cash reserves
with the
Reserve Bank of
India (RBI) .
This cash cannot be used for lending or investment purposes.
At present the Cash Reserve Ratio (CRR) in India is 4.00%. This is the result of
a reduction in CRR by 50 basis points (bps) by the Reserve Bank of India (RBI).
What is the Monetary Policy Committee?
Established under the RBI Act, 1934 (amended in 2016)
.
Composition
The Monetary Policy Committee (MPC) is a six-member
body of the
Reserve Bank of India (RBI) .
The committee comprises three RBI officials, including the
Governor
(as Chairperson), and three external members appointed by
the
government.
Functions
It is responsible for formulating India’s monetary policy
to maintain
price stability while supporting economic growth.
It sets the repo rate , the key policy rate
influencing interest rates
in the economy.
Meetings
It meets bi-monthly to review inflation, liquidity,
and economic
conditions, making data-driven decisions.
It sets the repo rate, the key policy rate influencing interest rates
in the economy.
Growth Projections by MPC
The MPC projects real GDP growth to improve from 6.4% this year to 6.7%
for
2025-26 , despite global uncertainties.
Key Risks : Headwinds include geopolitical tensions,
protectionist trade policies,
commodity price volatility, and financial market uncertainties.
Monetary & Forex Policy Measures
Liquidity Management :
The RBI acknowledges a recent liquidity crunch during
December and
January and has announced initiatives to ease this—focusing on both
overnight and durable liquidity .
Foreign Exchange (Forex) Strategy:
Market Intervention : The RBI’s interventions in the
forex market are
aimed at smoothening excessive volatility , not at
targeting a specific
exchange rate.
Currency Consideration : The recent decline of the rupee
was factored into
the MPC’s policy calculations.
External Sector Health :
India's current account deficit is expected to remain within
sustainable limits.
Foreign Exchange Reserves : As of January 31,
reserves stood at
$630.6 billion , offering an import cover of over
10 months,
reflecting a resilient external sector.
