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RBI Repo Rate Cut: This is the first interest rate cut by the RBI since Covid times (May 2020); here are the highlights of RBI Monetary Policy today:
RBI Monetary Policy February 2025.
RBI MPC Meeting February 2025 Highlights: The Reserve Bank of India’s (RBI) Monetary Policy Committee on Friday announced a 25 basis point cut in the repo rate to 6.25 per cent. RBI Governor Sanjay Malhotra on Friday said the policy stance remain same as ‘neutral’.
This is the first interest rate cut by the RBI since Covid times (May 2020). Between May 2020 and April 2022, the RBI kept the repo rate unchanged at 4 per cent. It then started hiking the policy rates since April 2022 and gradually raised to 6.5 per cent till February 2023 before keeping it unchanged for two years until now.
RBI MPC Meeting February 2025: Latest Repo Rate, Reverse Repo, SDF, MSF
After the latest cut, the repo rate now stands at 6.25 per cent. The repo rate is the rate at which the RBI lends money to the commercial banks. RBI Governor Sanjay Malhotra on Friday said the policy stance remain same as ‘neutral’.
The interest rate cut comes within a week of Finance Minister Nirmala Sitharaman in Budget 2025-26 providing biggest ever tax break to the middle class to boost consumption after the economy has slowed to its lowest pace since the pandemic.
The RBI also cut the SDF to 6 per cent, and MSF and Bank Rates maintained at 6.5 per cent. The SDF is the lower band of the interest rate corridor, while the MSF is the upper band.
The cash reserve ratio (CRR) stands at 4 per cent and the statutory liquidity ratio (SLR) stands at 18 per cent.
FY26 GDP Growth Projected At 6.7%
The RBI on Friday projected the growth rate for the upcoming financial year at 6.7 per cent, which is higher than the 6.4 per cent estimated for the current fiscal ending March.
As per the first advance estimates, real GDP growth for the current year is estimated at 6.4 per cent, a softer expansion after a robust 8.2 per cent growth last year.
While announcing his first bi-monthly monetary policy for the current fiscal, RBI Governor Sanjay Malhotra said healthy rabi prospects and an expected recovery in industrial activity should support economic growth in 2025-26.
Among the key drivers on the demand side, household consumption is expected to remain robust aided by the tax relief in the Union Budget 2025-26, he said.
The RBI projects real GDP growth for the next year at 6.7 per cent with Q1 at 6.7 per cent; Q2 at 7.0 per cent; Q3 at 6.5 per cent; and Q4 at 6.5 per cent.
FY26 Inflation Projected At 4.2%
The Reserve Bank on Friday projected the retail inflation at 4.2 per cent for next financial year beginning April while retaining the forecast for 2024-25 at 4.8 per cent.
Malhotra said food inflation pressures, in absence of any supply side shock, should see a significant softening due to good kharif production, winter-easing in vegetable prices and favourable rabi crop prospects.
He further said core inflation is expected to rise but remain moderate.
Also, continued uncertainty in global financial markets coupled with volatility in energy prices and adverse weather events, presents upside risks to the inflation trajectory, he said.
Taking all these factors into consideration, CPI inflation for 2024-25 is projected at 4.8 per cent with Q4 at 4.4 per cent, Malhotra said, after chairing his first Monetary Policy Committee meeting.
Additional Measures:
Banks To Have ‘bank.in’ Internet Domain Name, Non-Banks ‘fin.in’
In order to check cyber security threats, the Reserve Bank on Friday decided that Indian banks will have exclusive internet domain name ‘bank.in’ and non-bank financial entities ‘fin.in’.
Malhotra said registrations for ‘bank.in’ will commence from April 2025, and going forward ‘fin.in’ will be introduced.
The decision is aimed at enhancing trust in the financial sector, he said adding the increased instances of fraud in digital payments are a significant concern.
AFA For Cross-Border ‘Card Not Present’ Transactions
The RBI also decided to introduce an additional layer of security by enabling Additional Factor of Authentication (AFA) in cross-border ‘Card Not Present’ transactions.
The central bank said that introduction of AFA for digital payments has enhanced the safety of transactions which, in turn, provided confidence to customers to adopt digital payments.
This requirement, however, is mandatory for domestic transactions only.
“In order to provide a similar level of safety for online international transactions using cards issued in India, it is proposed to enable AFA for international card not present (online) transactions as well,” the RBI said.
Forward Contracts in Government Securities
The RBI also decided to include forward contracts in government securities to the suite of interest rate derivative products.
“Over the past few years, we have expanded the suite of interest rate derivative products available to market participants to manage their interest rate risks. We shall now include forward contracts in Government securities to this suite,” the RBI said.
It added that this would facilitate long-term investors such as insurance funds to manage their interest rate risk across interest rate cycles. It will also enable efficient pricing of derivatives that use Government securities as underlying instruments.
Access Of SEBI-Registered Non-Bank Brokers To NDS-OM
To enhance access of retail investors to government securities, the RBI said it will expand the access of NDS-OM, the electronic trading platform for secondary market transactions in government securities, to non-bank brokers registered with SEBI.
Review Of Trading and Settlement Timings Across Various Market Segments
In view of the various developments in financial markets and market infrastructure over the past few years, we shall set up a working group with representation from various stakeholders to undertake a comprehensive review of trading and settlement timing of markets regulated by the Reserve Bank.
“The Group shall submit its report by 30th April of this year,” the RBI said.
