RBI cuts rates, EMIs to drop: The Reserve Bank of India (RBI) has cut lending rates, also known as repo rates, just as US President Donald Trump’s “reciprocal tariffs” on India come into effect. The RBI’s rate cut is expected to cause EMIs to drop, making loans more affordable for borrowers.This was the first meeting in the financial year 2025-26 of the MPC. After a detailed assessment of the evolving macroeconomic and financial conditions and outlook, the MPC voted unanimously to reduce the policy repo rate by 25 basis points to 6 per cent with immediate effect. “As announced in the Monetary Policy Statement dated April 09, 2025, it has been decided by the Monetary Policy Committee (MPC) to reduce the policy repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 6.25 per cent to 6.00 per cent with immediate effect,” said RBI Governor Sanjay Malhotra.
Accordingly, with respect to the policy rate, which is the mandate of the MPC, today’s change in stance from ‘neutral’ to ‘accommodative’ means that going forward, the MPC is considering only two options – status quo or a rate cut, added Malhotra.
This is the second time this year that the central bank has cut repo rate. Earlier, it had reduced the key rate to 6.25 per cent in February.
What is repo rate?
The repo rate is the interest rate charged by the RBI from commercial banks on the money it lends to them.
RBI cuts rates: EMIs to drop
A repo rate cut generally means the central bank is reducing the interest rate at which it lends to commercial banks. This action is usually aimed at stimulating economic growth by making borrowing cheaper for banks, which then pass on the lower rates to consumers and businesses. While this is good news for borrowers, it could also indicate concerns about inflation or sluggish economic growth. With cheaper borrowing costs, consumers may benefit from lower EMIs on home, car, and personal loans, contributing to increased spending and potentially boosting economic growth.
RBI MPC on GDP
Real GDP is estimated to grow at 6.5 per cent in 2024-25, with Q1 at 6.5 per cent; Q2 at 6.7 per cent; Q3 at 6.6 per cent; and Q4 at 6.3 per cent. While the risks are evenly balanced around these baseline projections, uncertainties remain high in the wake of the recent spike in global volatility.
It may be noted that the growth projection for the current year has been marked down by 20 basis points relative to our earlier assessment of 6.7 per cent in the February policy. This downward revision essentially reflects the impact of global trade and policy uncertainties
RBI MPC on Inflation
CPI inflation for the financial year 2025-26 is projected at 4.0 per cent, with Q1 at 3.6 per cent; Q2 at 3.9 per cent; Q3 at 3.8 per cent; and Q4 at 4.4 per cent.
RBI MPC: Enhancing transaction limits in UPI
Currently, the transaction limit for UPI, which includes both Person to Person (P2P) and Person to Merchant (P2M) payments, is set at ₹1 lakh. However, specific P2M use cases have higher limits, with some transactions allowed up to ₹2 lakh and others up to ₹5 lakh.
To better accommodate new use cases, it is proposed that NPCI, in consultation with banks and other UPI ecosystem stakeholders, may revise these limits based on the evolving needs of users. Necessary safeguards will be implemented to minimize risks associated with higher limits. Banks will continue to have the flexibility to set their own internal limits within the guidelines provided by NPCI.
P2P transactions on UPI will remain capped at ₹1 lakh, as they currently are, with NPCI being informed accordingly.
The global economic outlook is rapidly shifting. Recent trade tariff measures have added to the uncertainties surrounding economic growth and inflation worldwide. Amid this volatility, the US dollar has weakened significantly, bond yields have decreased substantially, equity markets are undergoing corrections, and crude oil prices have dropped to their lowest levels in more than three years.
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