RBI Cuts Repo Rate to 6%, Lowers GDP Growth Forecast Amid Trade War Concerns
Why in News?
On Wednesday, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points to 6% in an effort to support economic growth amidst escalating global trade tensions. The RBI also revised its GDP growth forecast for India from 6.7% to 6.5% for the current financial year.
Introduction
Facing mounting economic uncertainty driven by global trade conflicts, the RBI’s Monetary Policy Committee (MPC) unanimously voted to ease interest rates to stimulate domestic investment and consumption. This marks the second consecutive repo rate cut of 0.25% by the central bank. 
Key Issues and Background
1. Repo Rate Cut
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The RBI reduced the repo rate from 6.25% to 6%, a move aimed at reducing the borrowing costs for home, auto, and business loans.
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A repo rate is the rate at which the RBI lends money to commercial banks.
2. Shift in Policy Stance
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The RBI shifted its stance from ‘neutral’ to ‘accommodative’, reflecting greater concern for economic slowdown than inflation.
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This stance aims to stimulate the economy through softer interest rates.
3. GDP Growth Forecast Trimmed
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The GDP growth forecast for FY has been lowered from 6.7% to 6.5%, signaling caution over global uncertainties.
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The MPC cited potential trade war fallout, triggered by U.S. President Trump’s tariff actions, as a key reason.
The Core of the Concern
1. Global Trade War Impact
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Rising tariffs and trade frictions are expected to dampen global investment and slow India’s exports.
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The committee is more concerned about external risks, particularly from U.S.-China tensions.
2. Domestic Economic Impact
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Higher global tariffs are anticipated to affect domestic investment and consumer confidence.
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The RBI warned of reduced spending by businesses and households due to the uncertain global outlook.
Key Observations
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The repo rate graph shows a clear easing trend: from 6.5% earlier to 6% now.
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Previous cuts occurred during economic uncertainty in April 2020 and April 2022, while the recent cut is the second in a row in 2025.
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This decision was made unanimously by the MPC, headed by Governor Sanjay Malhotra.
Conclusion
In response to mounting global uncertainties, the RBI’s proactive move to cut the repo rate and adopt an accommodative stance reflects its priority to shield India’s economy. However, the forecast cut in GDP growth underlines the challenges ahead, especially as global trade wars and high tariffs continue to pressure domestic demand and exports.
Q&A Section
Q1. What is the new repo rate set by the RBI?
The new repo rate is 6%, reduced by 0.25% or 25 basis points.
Q2. Why did the RBI cut the repo rate?
The RBI cut the repo rate to support growth, lower borrowing costs, and respond to global economic slowdown concerns caused by trade wars.
Q3. What is the revised GDP growth forecast for India?
The RBI lowered the forecast from 6.7% to 6.5% for the current year.
Q4. What policy stance has the RBI adopted?
The RBI shifted from a neutral to an accommodative policy stance to encourage economic activity.
Q5. Who is the current RBI Governor?
The current RBI Governor is Sanjay Malhotra, who leads the Monetary Policy Committee.
