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Below the Quote on RBI MPC Announcement by Mahendra Patil, Founder and Managing Partner, MP Financial Advisory Services LLP

“The Reserve Bank of India’s (RBI) decision to reduce the repo rate by 25 basis points to 6.25%, along with the Finance Ministry’s recent move to lower the tax burden for the middle class, is expected to have a significant impact on the Indian economy. The rate cut is driven by easing inflation, which stood at 5.22% in December 2024, and the RBI’s expectation that food inflation will remain controlled due to favorable kharif and rabi crop prospects. Additionally, slower-than-expected GDP growth, now projected at 6.4% for FY2025, down from the earlier estimate of 7.2%, has further justified the move.

 This decision also aligns the RBI with global monetary easing trends, following recent rate cuts by the Bank of England and the Bank of Mexico to support economic growth. The reduction in income tax will increase disposable income, stimulating consumer spending. Simultaneously, lower borrowing costs due to the repo rate cut will make loans more affordable, benefiting consumer durables, automobiles, and the real estate sector.

 A lower cost of capital will also enhance business competitiveness in export markets while encouraging investments in expansion and new projects. As consumer spending rises, increased demand for goods and services will drive higher production and capital investment by businesses. Together, these factors will create a cascading effect, driving GDP expansion and boosting employment generation.

 In summary, the combined impact of monetary easing by the RBI and fiscal incentives from the government is expected to stimulate consumption and investment, fostering economic revival and financial well-being. However, careful monitoring is essential to prevent inflationary pressures and ensure long-term economic stability.”

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