Priyanka
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New Delhi: For the first time since May 2018, the Reserve Bank of India decided to cut the policy rate from 6.5% to 6.25% citing the need for economic growth while ensuring sound financial stability.
Sanjay Malhotra, Governor of the Reserve Bank stated that the MPC underwent a vote regarding this policy and decided to cut the rate and set it to 6.25% unanimously.
The Reserve Bank has previously conducted the last cut in the interest rates in May 2020 from 6.25% to 6%, while the latest increment was in February of the ongoing year when the policy rate was raised to 6.5%.
Within a week of the announcement of a major tax deduction for the middle class, Finance Minister Nirmala Sitharaman claimed that this will help improve the new consumption in the economy which has recently slowed down significantly post pandamic.
After May of 2022, there was an increase in the rates after a pause in April of 2023 after what seemed to be six uninterrupted cycle periods. In total, there was an increase of 250 basis points.
After the budget, the Ministry of Finance highlighted the importance of cutting the policy rates and explained that the government budget and policy rates must be in cohesion.
This raises the case for an interest rate cut by the RBI in view of the measures announced in the Union Budget which includes the income tax rebate.
Earlier in the week, Finance Secretary Tuhin Kanta Pandey had remarked that the government aims to achieve a non-inflationary budget and fiscal target while bringing down the fiscal deficit and was optimistic that RBI's monetary policy would be synergistic with the growth supporting fiscal policy.
In the Union Budget 2025-26, wide ranging changes were also introduced such as cuts in tax rates for income earning middle class citizens, which will impact 10 million taxpayers.
Also, the government has improved its fiscal deficit estimates for this year and the following year. For FY25, the fiscal deficit has been set at 4.8 percent of GDP, which is an improvement over the budgeted 4.9 percent. For FY26 the deficit value is set at 4.4 percent, an improvement over the values in the consolidation roadmap.
