Repo Rate Strategy: RBI's Balancing Act Amid Inflation and Growth

Reserve Bank Governor Sanjay Malhotra announced a 25 basis point cut in the repo rate to 5.25%, signaling a prolonged low policy rate amid benign inflation. The RBI prioritizes real GDP over nominal figures and anticipates minor impacts from US tariffs, focusing on domestic demand for growth.

The Reserve Bank of India (RBI) announced on Friday a decision to cut the policy repo rate by 25 basis points, bringing it down to 5.25%. This move comes as inflation remains benign, according to RBI Governor Sanjay Malhotra.

Malhotra emphasized that while exact repo rate levels cannot be forecasted, the RBI's current inflation estimates support maintaining low rates. He highlighted that a target inflation level of 4% is ideal, although the current 0.2% is not sustainable for India's economy.

Looking ahead, the RBI will remain data-driven in its decisions. The growth expectation has softened, with the Governor attributing this to tariff impacts on specific sectors such as gems and jewelry. Despite these challenges, domestic demand remains a robust driver of the Indian economy.

(With inputs from agencies.)