Year Ender 2025: Whenever the country’s economic growth slows down or inflation starts getting out of control, then the Reserve Bank of India (RBI) takes steps to keep the economy stable. The Monetary Policy Committee (MPC) of RBI meets every two months to review the situation of inflation, interest rates and GDP, on the basis of which it is decided how much cash flow should be in the market and how to balance economic activities by reducing or increasing the cost of loans.
When and how much rate cut in 2025?
In the year 2025, giving great relief to the people, RBI reduced the repo rate by a total of 125 basis points from 6.5% to 5.25%. It was cut by 25 basis points in February, then by 25 basis points in April, twice as much as expected in June i.e. 50 basis points and again by 25 basis points in December. The general public directly benefits from the reduction in repo rates – home and car loans become cheaper, EMIs reduce and the purchasing power of consumers increases, thereby increasing demand in the market.
At the same time, the cost of capital for companies reduces, which improves their cash flow. However, experts believe that reduction in interest rates can sometimes increase capital outflow, because when interest rates in other countries are high, foreign investors prefer to invest money there, which can further increase the weakness of the rupee.
What is the impact of RBI’s action?
Dr. Aastha Ahuja, economist at Aryabhatta College, Delhi University, says that RBI policies have a direct impact on the direction of the stock market—changes in interest rates, availability of liquidity and investor sentiments, all three together decide the movement of the market. While the cash flow in the market increases due to reduction in repo rate, economic activities accelerate due to cheaper loans for companies and consumers.
But it also impacts the balance of payments (BOP), inflation and the strength of the rupee, which has already weakened and gone above 90 against the dollar. According to Ahuja, while large cap shares are performing well in the stock market at present, mid-cap and small-cap sectors are under pressure, the main reason for which is lack of demand in the market. In view of this entire situation, RBI has to run its monetary policy in a very balanced manner so that while keeping inflation under control, economic growth also gets momentum and the fall of rupee can also be stopped.
Also read: Rupee’s decline is not stopping even after crossing 90, again defeated by US dollar
