8th February 2025, kathmandu
India’s Reserve Bank (RBI) has reduced its key interest rate for the first time in five years. The central bank lowered the repo rate by 25 basis points, bringing it to 6.25%.
India Interest Rate Cut 2024
This decision comes as India faces economic challenges, including a slowdown in growth and rising inflation risks.
Inflation Drops but Remains Above Target
Retail inflation in India recently fell to 5.22% in December, the lowest in four months. Despite this drop, inflation is still above the RBI’s target of 4%. This indicates that price pressures continue, prompting the central bank to act. The goal is to shift focus towards encouraging economic growth while controlling inflation risks.
Slower Economic Growth Concerns
India’s economy grew at just 5.4% in the September quarter, much lower than expected. This marks the slowest pace in seven quarters. Analysts had expected growth of around 6.5%. With slower growth predicted for the current financial year, the country is experiencing its weakest expansion since the post-pandemic recovery.
RBI’s Focus on Balancing Inflation and Growth
RBI Governor Shaktikanta Das expressed that inflation is expected to moderate further in the next few years. He also noted that the country’s economic performance in the September quarter showed improvements, although it remained much lower than the previous year. Based on current conditions, the RBI believes a less restrictive monetary policy will better suit India’s needs.
Governor Shaktikanta Das’s Moderate Approach
Das has taken a softer stance compared to his predecessor, Urjit Patel, who raised rates aggressively between May 2022 and February 2023 to combat inflation. Under Patel, the RBI increased rates by 2.5 percentage points, a sharp contrast to the more cautious approach now being adopted.
Government Moves to Support Consumers
This RBI decision follows the Indian government’s announcement of significant income tax cuts in the annual budget. The government aims to provide relief to consumers burdened by high food prices and low wage growth. The tax cuts will put more disposable income in the hands of the public, encouraging spending and boosting the economy.
Outlook for India’s Economy
Although India remains one of the world’s fastest-growing major economies, the latest slowdown highlights the challenges it faces. The RBI’s decision to cut rates is aimed at reviving growth without exacerbating inflation. If successful, this could pave the way for stronger economic performance in the years ahead, even amid global uncertainties.
For more: India Interest Rate Cut 2024
