The RBI's Monetary Policy Committee (MPC) reduced the repo rate by 25 basis points to 6%, shifting its stance to "accommodative" to support economic growth. The committee expects GDP growth at 6.5% for 2025-26, with inflation at 4%. New measures include revised UPI transaction limits and improved stressed asset rules.
Copyright infringement not intended
The Monetary Policy Committee (MPC) announced a reduction of 25 bps in repo rate, bringing it to 6%.
In 2016, the RBI Act 1934 was amended to establish the MPC. Its main job is to control inflation by setting the repo rate, which is the interest rate banks pay when borrowing from the RBI. For example, if prices of goods are rising too fast, the MPC might increase the repo rate. This makes loans more expensive for people and businesses, so they borrow less, spend less, and inflation slows down.
The MPC has six members. Three come from the RBI: the Governor (who leads the committee), the Deputy Governor responsible for monetary policy, and one other official chosen by the RBI Board. The remaining three members are experts selected by the government. These external members serve for four years.
They aim to keep inflation within a target range (2%-6%) set by the government. To make decisions, all six members vote. If there’s a tie, the RBI Governor, who leads the committee, has the final say. Once they decide, their decision becomes binding on the RBI—it has to follow what the MPC decided.
The RBI shifted its stance from "neutral" to "accommodative" to support economic growth by making borrowing easier instead of focusing only on controlling inflation.
The RBI expects India’s GDP growth to be 6.5% in 2025-26. This is slightly lower than earlier predictions because of global challenges like trade tensions.
Inflation is under control. The RBI predicts inflation to stay around 4% for the year.
India has $676.3 billion in foreign exchange reserves, enough to cover imports for 11 months.
UPI Transaction Limits Revised: The RBI allowed NPCI (National Payments Corporation of India) to increase UPI transaction limits for person-to-merchant payments.
Stressed Asset Rules Improved: A new market-driven mechanism will help banks sell off bad loans (stressed assets). This gives lenders a way out and improves the banking system.
Co-Lending Rules Extended: Banks and other financial institutions can partner more easily to give loans across different sectors.
Gold Loan Guidelines Standardized: The RBI will create uniform rules for gold-backed loans to ensure fairness and safety.
Must Read Articles:
RBI Cuts CRR To Boost Liquidity
RBI Monetary Policy Committee Meeting
Source:
|
PRACTICE QUESTION Q. "The RBI acts as both a regulator and facilitator of economic growth." Critically analyze. 150 words |
© 2025 iasgyan. All right reserved
