The Reserve Bank of India (RBI), in its Monetary Policy Committee (MPC) meeting on Wednesday, revised its GDP growth forecast for FY2025-26 to 6.5 percent, down from the previous estimate of 6.7 percent made in February.
Alongside this, the RBI announced a 25 basis point cut in the repo rate, bringing it down to 6 percent, to support economic growth amid mounting global uncertainties.
This marks the second consecutive repo rate cut in 2025 and comes amid rising concerns over the impact of global trade tensions, volatile crude oil prices, and slowing global growth.
GDP Growth Revised Down to 6.5 percent
Announcing the decision, RBI Governor Sanjay Malhotra, in his second policy address since taking office in December 2024, said the downward revision in GDP growth was largely due to “growing risks in global trade and policy developments.”
“The Indian economy continues to show resilience, but we must account for increasing external risks and shifting global dynamics,” Malhotra said.
The RBI now expects the quarterly GDP growth for FY26 as follows: Q1: 6.5 percent, Q2: 6.7 percent, Q3: 6.6 percent and Q4: 6.3 percent.
Repo Rate Cut to 6 percent to Spur Lending and Ease EMIs
This is the second repo rate cut this year. The first came in February 2025, when the rate was reduced to 6.25 percent. With the latest cut, the repo rate now stands at 6 percent, which will lower borrowing costs for banks and translate into reduced EMIs for consumers.
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The repo rate is the interest charged by the RBI when it lends to commercial banks. A reduction typically results in cheaper loans, boosting consumer spending and business investments.
Inflation Expected to Stay Within RBI’s Comfort Zone
The RBI forecasted CPI inflation for FY26 at 4 percent, noting a sharp fall in food prices in early 2025 that helped moderate overall inflation. The quarterly CPI projections are: Q1: 3.6 percent, Q2: 3.9 percent, Q3: 3.8 percent and Q4: 4.4 percent.
“Inflation expectations among households have fallen sharply, which is a good sign for price stability,” said Malhotra.
A normal monsoon predicted by the India Meteorological Department (IMD) and no major concerns from El Niño are expected to further support agricultural output and keep food prices stable.
External Sector Remains Resilient
The RBI reported stable services exports, driven by IT, business services, and transportation, along with strong remittance inflows. The trade deficit remains manageable, and foreign exchange reserves are at comfortable levels, which should help shield the economy from short-term external shocks.
“We are confident in our ability to manage domestic growth even in a volatile global environment,” the RBI Governor added.
