RBI MPC Cuts Repo Rate by 25 bps to 6.25% After 11 Straight Holds

In an effort to boost the flagging economy, the Reserve Bank of India (RBI) lowered its main repo rate for the first time in almost five years and hinted at a less stringent policy stance in the future. Following eleven consecutive policy meetings in which the repo rate remained steady, the Monetary Policy Committee (MPC), which is composed of three RBI and three external members, reduced it by 25 basis points to 6.25%.

RBI Governor Sanjay Malhotra stated in the first policy review after his appointment in December that while economic growth is predicted to rebound, it is significantly lower than it was the previous year and that inflation dynamics have created room for rate easing.

"The MPC while continuing with the neutral stance felt that a less restrictive monetary policy is appropriate at this current juncture," Malhotra said.

Following the decision, India's benchmark 10-year bond rate increased by five basis points to 6.70 percent, but the rupee and benchmark market indexes saw slight declines.

A weaker manufacturing sector and slower corporate investments have caused India's government to estimate annual growth of 6.4% for the year ending in March, which is below the lower end of its initial projection. Its expansion rate would be the slowest it has been in four years.