The decision was made during the first Monetary Policy Committee (MPC) meeting of the financial year 2025-26, held from April 7-9.
In a parallel move to further stimulate growth, the RBI also shifted its monetary policy stance from ‘neutral’ to ‘accommodative’.
The decision to ease the monetary policy comes at a time when the global economic landscape is fraught with uncertainty.
Following a comprehensive evaluation of the macroeconomic outlook, the MPC members unanimously voted in favour of reducing the policy repo rate to 6.00%. This reduction will trigger a cascading effect on other key rates. The standing deposit facility (SDF) rate now stands at 5.75%, while the marginal standing facility (MSF) rate and the Bank Rate have both been adjusted to 6.25%.
The SDF is a tool employed by the RBI to absorb liquidity (deposits) from commercial banks without offering government securities in return, having replaced the reverse repo as the lower bound of the liquidity adjustment facility (LAF) corridor. The MSF, on the other hand, serves as a crucial window for banks to borrow from the RBI in emergency situations when inter-bank liquidity completely dries up.
The central bank highlighted a sharper-than-anticipated decline in food inflation as a primary driver behind this policy easing. While overall inflation has moderated below the target level, the MPC emphasized the continued need for vigilance concerning potential risks stemming from global economic trends.
The shift in the monetary policy stance to ‘accommodative’ signals the RBI’s inclination to either maintain the current interest rate or consider further reductions in the future, if deemed necessary.
An accommodative stance is designed to foster lower interest rates, thereby encouraging borrowing and investment and ultimately stimulating economic activity.
RBI Governor clarified that this change in stance should not be directly interpreted as a shift in the operational aspects of liquidity management. Instead, it should be viewed as a guiding signal for future policy actions. Liquidity management will continue to function as an independent operational tool aimed at facilitating the effective transmission of monetary policy.
