What is the reason behind RBI's repo rate cut after huge tax rebate?
The Monetary Policy Committee (MPC) of the reserve bank of india (RBI) has reduced the repo rate from 6.5% to 6.25%. Meaning, the interest rate has been reduced by 0.25%. This has happened for the first time in 5 years. The repo rate has decreased for the first time since 2020.
The repo rate is the rate at which banks take loans from RBI. When RBI reduces the repo rate, banks get cheaper loans. The advantage of this is that banks also give home loans, car loans and personal loans to their customers at a lower interest rate. Till now the repo rate was 6.5%. This news has come at a time when just a few days ago the central government announced a huge rebate in income tax in Budget 2025-26. Now this step of RBI is also in the same direction.
What the RBI governor said?
The RBI governor has said that RBI and the Monetary Policy Committee will continue to work together to improve the country's economy. They will continue to use the method to control inflation and will take decisions in view of the country's economic situation. He also said that they will improve this system by using new data to make better estimates of important economic things and by creating more accurate models. Meaning, they will try to know in an even better way what is going to happen next so that the right steps can be taken at the right time.
This policy is coming at a time when there is an atmosphere of uncertainty all over the world. US President donald trump has announced tariffs (import duties) on canada, mexico and China. However, the tariffs on canada and mexico have been postponed for a month. Due to these tariffs, the fear of global trade war has arisen.
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