RBI's rate cut sets stage for further easing of interest rates in near term: India Inc

India Inc. welcomed the Reserve Bank of India’s (RBI) move to slash the benchmark interest rate for the first time in nearly five years on Friday (February 7, 2025) and asserted that it will complement the consumption-boosting measures announced in the last week’s Budget, providing much-needed support to the economy.

Industry bodies were of the view that the Reserve Bank's 25 basis points rate cut to 6.25%, which comes after the last rate reduction in May 2020, sets the stage for further easing of interest rates over the near term. The last revision of rates happened in February 2023 when the policy rate was hiked by 25 basis points to 6.5%.

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"This calibrated approach by the Central Bank reflects a careful balance between fostering economic growth and maintaining financial stability. The rate cut is anticipated to complement the consumption-boosting measures announced in the Union Budget 2025-26, providing a boost to domestic demand drivers," Chandrajit Banerjee, Director General at CII, said.

"We believe that the easing inflation trend and non-inflationary fiscal policy have provided the RBI with the opportunity to continue its rate cut cycle and implement a larger rate cut once financial conditions become favourable," he said.

FICCI president Harsha Vardhan Agarwal welcomes RBI's decision to cut the repo rate by 25 basis points and said the move will provide much-needed support to the economy at this juncture.

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He termed the RBI's decision to ease the policy rate as a timely and forward-looking step, hoping that the banking sector would follow through on this cue and a lowering of lending rates would be seen.

"Further, while RBI has maintained a neutral stance with regard to Monetary Policy, the indication towards a more flexible interpretation of inflation targeting sets the stage for further rate cuts over the near term," Mr. Agarwal added.

“The Budget has laid a strong foundation for investment-led growth emphasising manufacturing, MSMEs (micro, small and medium enterprises) and infrastructure. The rate cut complements these measures, lending further support to India’s growth outlook,” the FICCI President observed.

Hemant Jain, president, PHDCCI, stated that the reduction in the repo rate will lead to increased investment, higher consumer spending, enhanced production and accelerated overall economic growth.