The Reserve Bank of India's Monetary Policy Committee has cut its benchmark repurchase rate by 25 basis points from 6.50 percent to 6.25 percent at its policy review held today, in line with the consensus forecast. Prior to today's decision, this rate had been on hold since February 2023 after it was earlier increased by a cumulative 250 basis points beginning in mid-2022.

Data released since the RBI's previous meeting in December have shown headline CPI inflation moderating from 6.21 percent in October to 5.48 percent in November and 5.22 percent in December, back within the RBI's target range of two percent to six percent. This decline was anticipated by officials and mainly reflects the impact of food prices.

In the statement accompanying today's decision, RBI officials highlighted the recent decline in inflation and expressed confidence that favourable weather conditions will further reduce food inflation pressures. Core inflation is expected to rise but remain moderate and officials see the risk to the inflation outlook as"evenly balanced". Officials expect household consumption to remain robust but expressed caution about external risks to the growth outlook and noted that they forecast growth will be weaker than it was last year.

Reflecting this assessment of the inflation and growth outlook, officials concluded that there is now"policy space" to support growth with a rate cut today. Officials reaffirmed, however, that the policy stance remains"neutral" for now, judging that this will provide them with flexibility in upcoming meetings.

After opening the liquidity floodgates by an aggressive addition of reserves last week, the RBI will follow up by cutting its repo rate by 25 basis points to 6.25 percent in a bid to revive the economy, its first rate cut in more than four years.

The Reserve Bank of India (RBI) issues six Bi-monthly Policy Statements a year. During these announcements the RBI will signal any shifts in its monetary stance, particularly with reference to the benchmark repo interest rate and its cash reserve ratio (CRR). The Governor will also update the Bank's view of recent economic developments and provide new forecasts for inflation and growth. A 4 percent inflation target with a +/- 2 percentage point tolerance band was formally implemented in August 2016 and will be overseen by a new six-member Monetary Policy Committee (MPC).

Although the RBI monitors many economic indicators - as indeed all central banks do - the RBI most closely monitors inflation. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity while lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or for those who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India. The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India. Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. Its function is to advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time. Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.