In a bid to make borrowing more affordable, the Reserve Bank of India (RBI) on Thursday reduced the repo rate by 25 basis points, bringing it down to 6%. The move is expected to ease lending rates for banks, ultimately translating into lower EMIs for retail borrowers.

RBI Governor Sanjay Malhotra announced that the Monetary Policy Committee (MPC) had reached a unanimous decision to implement the rate cut. This marks the second rate reduction in the current calendar year—the first having occurred in February when the repo rate was lowered to 6.25%.

The repo rate is essentially the interest rate at which the central bank lends money to commercial banks. A cut in this rate usually encourages banks to pass on the benefit to consumers through cheaper loans.

Governor Malhotra highlighted that the new financial year is commencing amid heightened uncertainty in the global economic environment. The central bank is closely monitoring inflation risks, particularly those arising from international volatility. The recent imposition of reciprocal tariffs by the United States on Indian goods has added another layer of concern.

“Trade tensions are dampening global growth, which could impact our own growth prospects through reduced net exports,” Malhotra said. He noted that India is actively engaging in trade discussions with the US to manage these developments. However, he remained confident about India's capacity to sustain domestic growth.

On the domestic front, Malhotra struck an optimistic tone. “The agricultural outlook is favourable, and we are seeing early signs of a manufacturing turnaround,” he noted. “The services sector remains robust, and urban consumption is on the rise, bolstered by increased discretionary spending,” he added. According to him, the financial health of both banks and corporates is strong.

The Governor also pointed out that inflation has been below the central bank’s target, largely due to a significant decline in food prices, which gave the MPC room to ease rates.

While announcing the policy decision, the RBI also revised its GDP growth forecast for the ongoing fiscal. The real GDP growth estimate has been trimmed by 20 basis points and now stands at 6.5%.