In a significant move to bolster economic activity, the Reserve Bank of India (RBI) on Friday reduced the policy repo rate by 50 basis points to 5.50%. The decision was announced following the 55th meeting of the Monetary Policy Committee (MPC), held from June 4 to 6.
Consequently, the Standing Deposit Facility (SDF) rate has been adjusted to 5.25%, while both the Marginal Standing Facility (MSF) rate and the Bank Rate now stand at 5.75%. These changes aim to achieve the medium-term target of 4% consumer price index (CPI) inflation, within a tolerance band of ±2%, while also enhancing growth momentum.
Economic Outlook
The RBI’s policy statement acknowledges a mix of positive and negative factors influencing the economy. While global economic uncertainties persist, recent trends indicate easing market volatility, a recovery in equity markets, and a softening of the dollar index and crude oil prices. However, gold prices remain elevated.
Data from the National Statistical Office (NSO) released on May 30 revealed that India’s real GDP growth for Q4 of 2024-25 was 7.4%, up from 6.4% in Q3. The real Gross Value Added (GVA) increased by 6.8% in the same quarter. For the entire fiscal year 2024-25, real GDP growth was recorded at 6.5%, with real GVA at 6.4%.
Looking ahead, the RBI projects a real GDP growth of 6.5% for 2025-26, with quarterly estimates of 6.5% in Q1, 6.7% in Q2, 6.6% in Q3, and 6.3% in Q4. These projections are based on sustained private consumption, increased fixed capital formation, and supportive government capital expenditure.
However, the policy also notes potential downside risks, including prolonged geopolitical tensions, global trade uncertainties, and weather-related challenges.