RBI Repo Rate Cut: GDP Forecast Lowered To 6.5 Per Cent

RBI MPC Meet: The Reserve Bank of India (RBI) on Tuesday lowered its GDP growth projection for 2025–26 to 6.5 per cent, down from the 9.2 per cent growth recorded in the previous year. The downward revision reflects the central bank’s analysis of persistent global volatility and an uneven domestic recovery. The move came alongside a policy rate cut of 25 basis points, bringing the repo rate down to 6.00 per cent, as the RBI attempts to cushion the economy against external shocks.

The Monetary Policy Committee (MPC) led by Governor Sanjay Malhotra decided in unison to cut the rate at its 54th meeting held between April 7 and 9, 2025. Standing Deposit Facility (SDF) and the Marginal Standing Facility (MSF) rates have been revised to 5.75 per cent and 6.25 per cent, respectively.

The decision follows when headline inflation has decreased significantly and GDP forecasts have also been lowered to 6.5 per cent by RBI for Financial Year 2025-26. Consumer Price Index (CPI) inflation fell steeply by 1.6 percentage points in the first two months of 2025—from 5.2 per cent in December 2024 to 3.6 per cent in February 2025—largely because of a steep season correction in vegetable prices. Food inflation dropped to a 21-month low of 3.8 per cent in February. The fuel category continued to be in deflation, while core inflation, having been flat, increased modestly to 4.1 per cent because of a steep rise in gold prices.

The MPC observed a "decisive improvement" in inflation expectations. Based on an assumption of a normal monsoon, the CPI inflation for 2025-26 is estimated at 4.0 per cent, with quarterly rates at 3.6 per cent in Q1, 3.9 per cent in Q2, 3.8 per cent in Q3, and 4.4 per cent in Q4. Risks to this projection seem as evenly balanced, although global volatility and weather-related supply shocks are possible hazards.

On the growth side, the RBI has held the GDP growth projection at 6.5 per cent for 2025–26. Though a deceleration from the 9.2 per cent growth in 2023–24, it reflects sustainability amid international economic uncertainty. Urban demand, better urban consumption, and increased government capital expenditure are expected to drive growth. Corporate and banking sector balance sheets are healthy, and capacity utilisation is accelerating.

For the current fiscal year 2025–2026 (FY26), India’s real gross domestic product (GDP) is projected to rise by 6.5 per cent annually, a downward revision from the previous estimate of 6.7 per cent. The following are the updated quarterly growth projections:

Q1: 6.5 per cent (updated from 6.7 per cent).

Q2: 6.7 per cent, which was changed from 7.0 per cent.

Q3: 6.6 per cent, which was changed from 6.5 per cent.

Q4: 6.3 per cent, which was changed from 6.5 per cent.

However, the global external environment continues to be a cause of concern. Global market volatility and recent trade tariffs have brought fresh headwinds, causing dollar index declines, equities selling, and weakening crude oil prices. Merchandise exports will also face pressure with this new global backdrop, but services exports will remain strong.

As per the RBI, while growth has accelerated, recovery will continue to be unbalanced and incomplete after the anaemic first half of 2024–25. Hence, the rate reduction aims at extending more support to the home loan demand as well as luring private investment into recapture.

The central bank also observed that inflation expectations have reduced significantly in the short term, and this is likely to anchor overall price stability. On the other hand, food inflation expectation is supported by improved rabi crop estimates, the best-ever wheat production, and good Kharif arrivals.

Considering these aspects, the RBI decided that prevailing conditions allow for space to give growth precedence without sacrificing its 4 per cent medium-term inflation goal, in the range of 2 to 6 per cent. The central bank, however, reiterated that it would continue to watch global and domestic events closely, suggesting that policy is fact-driven.

In taking this step, borrowers, in particular, will receive more benign EMIs, if banks choose to pass on the gain, while savers may have reduced returns on fixed-income products. With further softening of inflation, industry and households alike may experience more purchasing power and ease of lending.