RBI MPC meet: Repo rate cut by 25 bps to 6%, GDP growth projection for FY26 lowered to 6.5%; Key takeaways

The Reserve Bank of India (RBI) slashed its key policy repo rate by 25 basis points to 6.00% on Wednesday, adopting an accommodative stance for the first time since the pandemic era, as it seeks to boost economic growth amid a faltering global outlook and easing inflation pressures at home.

The decision comes against a backdrop of heightened global economic uncertainty, exacerbated by recent trade tariff measures that have unsettled markets and clouded growth prospects worldwide.

Announcing the first bi-monthly monetary policy of the fiscal year, RBI Governor Sanjay Malhotra highlighted that the Indian economy has made steady progress towards achieving price stability and growth despite global headwinds.

“The Indian economy has made steady progress towards the goal of price stability and sustained growth,” Malhotra said in a statement. “The benign inflation outlook and moderate growth demand that the MPC continues to support growth.”

Key takeaways from MPC statement:

• Malhotra said FY26 has begun on an "anxious note" for the global economy amid emerging challenges such as the US imposing a 26% reciprocal tariff on India, effective today.

• The rate cut, effective immediately, adjusts the standing deposit facility (SDF) rate to 5.75% and the marginal standing facility (MSF) rate and Bank Rate to 6.25%.

• For 2025-26, the RBI projected growth at 6.5%, a slight downward revision from its February forecast of 6.7%, attributed to trade and policy uncertainties.

• The RBI projected real GDP growth for Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.3%.

• The MPC changed its stance from "neutral" to "accommodative," signalling potential for further rate cuts or status quo to stimulate the economy through softer interest rates amid a benign inflation outlook.

• CPI inflation is projected at 4.0% for 2025-26, assuming a normal monsoon, with quarterly estimates of 3.6% in Q1, 3.9% in Q2, 3.8% in Q3, and 4.4% in Q4.

• The MPC noted that inflation is currently below the target, supported by a sharp fall in food inflation. "As per projections, there is now a greater confidence of a durable alignment of headline inflation with the target of 4% over a 12-month horizon," the statement read.

• “The risks are evenly balanced,” Malhotra said, though he cautioned that global uncertainties and weather disruptions could pose upside risks.

• Malhotra said that uncertainty from tariffs and trade frictions could dampen growth by affecting investment, spending, and net exports, though falling crude oil prices and a weaker US dollar may provide some relief.

• The governor announced six regulatory and fintech-related measures to enhance financial inclusion and market efficiency, including a new market-based mechanism that will complement the existing asset reconstruction company (ARC) route.

The next meeting of the MPC is scheduled from June 4 to 6.