{"id":44864,"date":"2025-02-08T12:25:09","date_gmt":"2025-02-08T06:55:09","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=44864"},"modified":"2025-05-06T15:11:05","modified_gmt":"2025-05-06T09:41:05","slug":"repo-rate-cut-by-rbi","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/repo-rate-cut-by-rbi\/","title":{"rendered":"Repo Rate Cut by RBI &#8211; A Shift in Monetary Policy"},"content":{"rendered":"<h2>What\u2019s in Today\u2019s article?<\/h2>\n<ul>\n<li>RBI\u2019s Monetary Policy Latest News<\/li>\n<li>RBI\u2019s Monetary Policy: Key Highlights of the RBI\u2019s MPC Decisions<\/li>\n<li>RBI\u2019s Monetary Policy: Digital Security Initiative<\/li>\n<li>RBI\u2019s Monetary Policy: Key Takeaways from the RBI\u2019s MPC Decisions<\/li>\n<li>RBI\u2019s Monetary Policy: Market Reactions of the RBI\u2019s MPC Decisions<\/li>\n<li>RBI\u2019s Monetary Policy: Future Monetary Policy Projection<\/li>\n<li>Conclusion<\/li>\n<li>RBI\u2019s Monetary Policy FAQs<\/li>\n<\/ul>\n<h2>RBI\u2019s Monetary Policy Latest News<\/h2>\n<ul>\n<li>The Reserve Bank of India\u2019s (RBI) Monetary Policy Committee (MPC) has <strong>lowered the repo rate by 25 basis points (bps) to 6.25%<\/strong> &#8211; the first rate cut in 57 months.\u00a0<\/li>\n<li>This move is aimed at <strong>supporting economic growth amid easing inflation projections<\/strong>.<\/li>\n<\/ul>\n<h2>RBI\u2019s Monetary Policy: Key Highlights of the RBI\u2019s MPC Decisions<\/h2>\n<ul>\n<li><strong>Repo rate cut:<\/strong> The repo rate is the <strong>interest rate at which a central bank lends money to commercial banks<\/strong>. The term &#8220;repo&#8221; stands for <strong>&#8220;repurchase option&#8221;<\/strong>. The RBI reduced the repo rate from <strong>6.5% to 6.25%.<\/strong><\/li>\n<li><strong>Inflation outlook:<\/strong> Inflation is expected to ease to 4.4% this quarter and further moderate to 4.2% in 2025-26.<\/li>\n<li><strong>Impact on loans:<\/strong> The reduction in the repo rate could lead to<strong> cheaper loans<\/strong> for homes, cars, and other purposes.<\/li>\n<li><strong>First rate cut since 2020:<\/strong> The last rate cut occurred in May 2020 when the repo rate was reduced to 4% during the COVID-19 crisis.<\/li>\n<\/ul>\n<h2>RBI\u2019s Monetary Policy: Digital Security Initiative<\/h2>\n<ul>\n<li><strong>Exclusive internet domain for banks: <\/strong>The RBI has announced the launch of the <strong>\u2018bank.in\u2019<\/strong> domain for Indian banks <strong>to enhance trust in digital transactions<\/strong>.<\/li>\n<li><strong>Objective:<\/strong> To reduce cybersecurity threats, prevent phishing, and streamline secure financial services.<\/li>\n<li><strong>Implementation:<\/strong>\n<ul>\n<li>The Institute for Development and Research in Banking Technology (<strong>IDRBT<\/strong>) will act as the exclusive registrar.<\/li>\n<li>Actual registrations will begin in April 2025.<\/li>\n<li>Detailed guidelines for banks will be issued separately.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Future expansion:<\/strong> Plans to introduce \u2018<strong>fin.in<\/strong>\u2019 for non-bank financial entities in the future.<\/li>\n<\/ul>\n<h2>RBI\u2019s Monetary Policy: Key Takeaways from the RBI\u2019s MPC Decisions<\/h2>\n<ul>\n<li><strong>Monetary policy stance:<\/strong>\n<ul>\n<li><strong>Neutral approach:<\/strong> Despite the rate cut, the MPC has maintained a neutral monetary stance.<\/li>\n<li><strong>Global uncertainties:<\/strong> Risks from geopolitical tensions, trade protectionism, and financial market volatility remain key concerns.<\/li>\n<li><strong>Inflation targeting: <\/strong>The RBI remains committed to ensuring inflation aligns with its target while supporting economic growth.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Economic growth projections:<\/strong>\n<ul>\n<li><strong>Real GDP growth forecast:<\/strong>\n<ul>\n<li>6.4% for the current financial year (2024-25). 6.7% for 2025-26.<\/li>\n<li>Real gross domestic product (GDP) is an<strong> inflation-adjusted measure<\/strong> that reflects the value of all goods and services produced by an economy in a given year.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Factors supporting growth:<\/strong>\n<ul>\n<li>Improving employment conditions.<\/li>\n<li>Income tax relief from the 2025-26 Union Budget.<\/li>\n<li>Stable agricultural output with the assumption of a normal monsoon.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li><strong>Rural vs. urban demand:<\/strong>\n<ul>\n<li><strong>Rural demand: <\/strong>On an upward trend, showing resilience.<\/li>\n<li><strong>Urban consumption:<\/strong> Subdued, with mixed signals from high-frequency indicators.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Currency and external sector:<\/strong>\n<ul>\n<li><strong>Rupee volatility:<\/strong>\n<ul>\n<li>The Indian rupee has depreciated by 3.2% against the US dollar since November 6, 2024, in line with global trends.<\/li>\n<li>The RBI is focused on maintaining stability in the currency market without targeting a specific exchange rate.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Foreign exchange reserves:<\/strong>\n<ul>\n<li>Stand at <strong>$630.6 billion as of January 31, 2025<\/strong>, covering over 10 months of imports.<\/li>\n<li>The RBI has been using foreign exchange reserves to prevent excessive volatility while allowing a gradual depreciation.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Current account deficit:<\/strong> Expected to remain within sustainable levels, ensuring external sector resilience.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Liquidity management:<\/strong>\n<ul>\n<li><strong>Liquidity crunch in December-January:<\/strong> Attributed to advance tax payments, capital outflows, forex operations, and increased currency circulation.<\/li>\n<li><strong>Rise in currency in circulation:<\/strong> Increased by \u20b91.80 lakh crore (5.3%) to \u20b935.99 lakh crore as of January 2025.<\/li>\n<li><strong>Banks urged to lend in Call Money Market:<\/strong>\n<ul>\n<li>The call money market is a short-term financial market where banks and other institutions borrow and lend funds to each other. It&#8217;s also known as the &#8220;<strong>notice money<\/strong>&#8221; market.\u00a0<\/li>\n<li>RBI Governor Sanjay Malhotra advised banks to actively participate in the uncollateralized call money market instead of parking funds with the RBI.<\/li>\n<\/ul>\n<\/li>\n<li><strong>Measures to address liquidity:<\/strong> The RBI has assured proactive interventions to ensure orderly liquidity conditions.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2>RBI\u2019s Monetary Policy: Market Reactions of the RBI\u2019s MPC Decisions<\/h2>\n<ul>\n<li><strong>Stock markets:<\/strong> The Sensex fell by 198 points (0.25%) to 77,860.19, while the NSE Nifty declined by 43 points (0.18%) to 23,559.95.<\/li>\n<li><strong>Banking sector performance:<\/strong> The BSE Bankex fell by 0.49%.<\/li>\n<li><strong>Bond markets:<\/strong> The 10-year bond yield increased slightly to 6.70%.<\/li>\n<li><strong>Rupee movement:<\/strong> The rupee <strong>appreciated <\/strong>by 15 paise to 87.43 against the US dollar.<\/li>\n<\/ul>\n<h2>RBI\u2019s Monetary Policy: Future Monetary Policy Projection<\/h2>\n<ul>\n<li><strong>Less restrictive policy on the anvil?:<\/strong> Malhotra hinted that the MPC might shift its stance from neutral if inflation-growth dynamics turn favorable.<\/li>\n<li><strong>Expected rate cuts:<\/strong> There are expectations of two more rate cuts in 2025 if inflation moves as projected.<\/li>\n<li><strong>Aspirational growth target: <\/strong>The RBI Governor expressed a desire for 7% GDP growth.<\/li>\n<\/ul>\n<h2>Conclusion<\/h2>\n<ul>\n<li>The RBI\u2019s rate cut signals a shift in monetary policy to stimulate economic growth while maintaining inflation control.\u00a0<\/li>\n<li>With a neutral stance, the central bank is balancing inflationary concerns and global uncertainties while ensuring stability in India\u2019s financial markets.\u00a0<\/li>\n<li>The introduction of the \u2018bank.in\u2019 domain is a crucial step toward securing India\u2019s digital financial ecosystem.\u00a0<\/li>\n<li>The market remains cautious, awaiting further policy signals from the RBI.<\/li>\n<\/ul>\n<h2>RBI\u2019s Monetary Policy FAQs<\/h2>\n<p><strong>Q1.<\/strong> What is the significance of the recent RBI repo rate cut, and how does it impact the Indian economy?<\/p>\n<p><strong>Ans.<\/strong> The RBI cut the repo rate by 25 basis points to 6.25% for the first time in 57 months to stimulate economic growth by making borrowing cheaper.\u00a0<\/p>\n<p><strong>Q2.<\/strong> How does the RBI manage liquidity in the economy?<\/p>\n<p><strong>Ans.<\/strong> The RBI manages liquidity through open market operations, repo rate adjustments, and forex interventions.<\/p>\n<p><strong>Q3. <\/strong>Discuss the role of foreign exchange reserves in maintaining financial stability.<\/p>\n<p><strong>Ans. <\/strong>Foreign exchange reserves act as a buffer against external shocks and help stabilize the rupee.\u00a0<\/p>\n<p><strong>Q4.<\/strong> What is the purpose of introducing the \u2018bank.in\u2019 domain?<\/p>\n<p><strong>Ans.<\/strong> The \u2018bank.in\u2019 domain aims to enhance cybersecurity, reduce phishing attacks, and ensure safe digital transactions.\u00a0<\/p>\n<p><strong>Q5.<\/strong> What are the RBI\u2019s growth and inflation projections for the Indian economy?<\/p>\n<p><strong>Ans.<\/strong> The RBI projects real GDP growth of 6.7% for 2025-26, assuming a normal monsoon and stable agricultural output.\u00a0<\/p>\n<p><strong>Source<\/strong>: <a href=\"https:\/\/www.thehindu.com\/business\/Economy\/rbi-monetary-policy-committee-meeting-friday\/article69190903.ece\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a> | <a href=\"https:\/\/indianexpress.com\/article\/business\/takeaways-rbi-governor-sanjay-malhotra-monetary-policy-9822738\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a> | <a href=\"https:\/\/www.thehindu.com\/business\/rbi-announces-bankin-finin-domains-for-banks-nbfcs-to-combat-cyber-fraud\/article69193551.ece#\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Reserve Bank of India\u2019s (RBI) Monetary Policy Committee (MPC) has lowered the repo rate by 25 basis points (bps) to 6.25% &#8211; the first rate cut in 57 months. <\/p>\n","protected":false},"author":5,"featured_media":44865,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-44864","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/44864","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=44864"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/44864\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/44865"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=44864"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=44864"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=44864"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}