RBI MPC Meeting: 25 bps Repo Rate Cut to 5.75% Likely

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RBI MPC Meeting: 25 bps Repo Rate Cut to 5.75% Likely

The Reserve Bank of India’s Monetary Policy Committee (MPC) meeting is underway, and all eyes are on Governor Sanjay Malhotra as markets brace for a potential 25 basis points (bps) repo rate cut to 5.75%. If delivered, this would mark the third consecutive rate reduction by the central bank—a clear signal that stimulating growth remains a top priority. But what does this mean for borrowers, savers, and the broader economy? Let’s break it down.

What is the RBI MPC Meeting?

The Monetary Policy Committee (MPC) is the six-member panel responsible for setting India’s benchmark interest rates. Led by RBI Governor Sanjay Malhotra, the committee includes three RBI officials and three external members appointed by the government. Their primary mandate? Balancing inflation control with economic growth—a tightrope walk in today’s volatile global climate.

MPC meetings occur bi-monthly, with decisions influencing everything from loan EMIs to corporate investments. Think of it as the economy’s thermostat: tweaking rates to either cool down inflation or heat up sluggish demand.

Expected Repo Rate Cut: 25 bps to 5.75%

With the current repo rate at 6.00%, a 25 bps cut seems almost certain. Here’s why:

• Inflation in check: Retail inflation has hovered near the RBI’s 4% target, giving room for easing.
• Growth concerns: Q1 GDP growth slowed to 6.1%, below expectations.
• Global pressures: US tariff threats and slowing Chinese demand warrant preemptive action.

This would follow cuts in April and June—an aggressive easing cycle reminiscent of the 2019-20 period. But will it be enough to revive private investment?

Live Updates from the RBI MPC Meeting

Key announcements (as of 10:30 AM IST):

• Repo rate cut to 5.75% (expected)
• Reverse repo rate adjusted to 5.25%
• GDP growth projection revised downward to 6.3% for FY25
• Inflation forecast retained at 4.5%

Early reactions suggest a divided MPC, with external member Dr. Ashima Goyal reportedly advocating for a steeper 50 bps cut.

Implications of the Repo Rate Cut

For borrowers: Home loan EMIs could drop by ₹500-₹700 per lakh. MSMEs may access cheaper working capital.

For savers: Fixed deposit rates likely to dip further—bad news for retirees relying on interest income.

For the economy: A double-edged sword. While lower rates could spur consumption, they risk fueling asset bubbles if credit growth outpaces real demand.

Market Reactions and Expert Opinions

The Nifty Bank Index jumped 1.2% pre-announcement, while 10-year bond yields fell 8 bps. “This is more about sentiment than substance,” argues economist Rajiv Kumar. “Transmission remains weak—only 40% of past cuts reached end borrowers.”

Comparatively, the Fed’s hawkish pause makes India’s easing stance riskier. A widening rate differential could trigger foreign portfolio outflows.

RBI Governor Sanjay Malhotra’s Key Statements

In his post-meeting briefing, Governor Malhotra emphasized:

• “Inflation control remains non-negotiable”
• “Growth support measures will be calibrated”
• “Monitoring global spillovers, especially commodity prices”

Notably, he avoided direct commentary on US tariffs but hinted at “contingency plans.”

Historical Context: Previous RBI MPC Decisions

The current easing cycle began in April 2024 with a 25 bps cut, followed by another in June. Prior to this, rates had peaked at 6.50% in February 2023 to combat post-pandemic inflation.

Past cuts have had mixed results. The 2019-20 reductions failed to prevent a growth slump, proving monetary policy can’t work in isolation.

FAQs About the RBI MPC Meeting

Q: How does the repo rate affect common people?
A: It influences loan interest rates (lower EMIs when cut) and deposit returns (reduced FD rates).

Q: Why consecutive cuts?
A: To counter slowing growth amid manageable inflation.

Q: Next MPC meeting date?
A: October 6-8, 2024.

Conclusion

Today’s expected 25 bps cut reflects the RBI’s delicate balancing act. While borrowers celebrate, savers face tougher choices. The real test? Whether banks pass on benefits fully—and if demand responds without stoking inflation. One thing’s certain: with global headwinds mounting, Governor Malhotra’s job just got harder.

What’s your take—is this rate cut timely or premature?

Source: Livemint – Markets

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