February 7, 2025: The Reserve Bank of India (RBI) has announced a 25 basis points (bps) cut in the repo rate, reducing it from 6.5% to 6.25%. The decision was made during the three-day Monetary Policy Committee (MPC) meeting that began on February 5, marking the first major policy announcement under RBI Governor Sanjay Malhotra, who took charge in December 2024 following the tenure of Shaktikanta Das.

The move was widely anticipated by market analysts and economists as part of the central bank’s efforts to inject more liquidity into the financial system. The RBI had previously taken a similar step in December 2024 when it announced a liquidity infusion of ₹1.16 trillion by reducing the cash reserve ratio (CRR) by 50 basis points to 4%. However, at that time, the repo rate was left unchanged at 6.5%.

In his statement, Governor Malhotra provided an optimistic outlook on economic growth, estimating real GDP growth for the next financial year at 6.75%. He projected growth at 6.7% in the first quarter, 7.0% in the second quarter, and 6.5% in both the third and fourth quarters. Addressing concerns over the financial system’s health, Malhotra assured that the parameters for scheduled commercial banks remained strong, with the credit-deposit ratio standing at 80.8% as of January 2025, similar to September 2024 levels. He also noted that non-banking financial companies (NBFCs) were maintaining robust financial stability.

Despite the expected rate cut, the stock market reacted negatively to the announcement. The BSE Sensex dropped by 192.14 points, or 0.25%, closing at 77,866.02, while the NSE Nifty declined by 73.05 points, or 0.31%, settling at 23,530.30. Analysts believe that while the rate cut aims to boost liquidity, investor sentiment was dampened by concerns over inflationary pressures and long-term economic stability.

With global economic conditions remaining uncertain, the RBI’s future policy decisions will be closely watched by investors, businesses, and policymakers alike. The central bank’s focus will likely remain on balancing economic growth with inflation control as it navigates the challenges ahead.