RBI’s Monetary Policy Committee meeting begins today:Interest rate may decrease by 0.25%, meeting will conclude on Oct 1

The Monetary Policy Committee (MPC) meeting of the Reserve Bank of India (RBI) is starting today, September 29. This meeting will continue till October 1, and on the same day, all the decisions taken in it will be announced. In this MPC meeting of the RBI, interest rates may be cut by 25 basis points. Recently, a latest report from the State Bank of India (SBI) provided this information. If this happens, loan and interest rates may decrease slightly, which could provide relief to common people and businesses. This could be a good sign for the economy, as it would make credit cheaper and boost business. The report states that inflation is currently fully under control and is expected to decrease further in the future. If RBI does not cut rates, it will be a “Type 2 Error” The SBI report also stated that the reduction in GST rates in 2019 led to a decrease of about 35 basis points in inflation. Therefore, now is the right time to cut interest rates. If RBI does not cut rates now, it will be a “Type 2 error”, meaning making a wrong decision at the right time. It has happened before when RBI did not cut interest rates despite favorable conditions. The bar for interest rate cuts has been high since June The report also emphasized that the bar for interest rate cuts has been high since June. Therefore, RBI will have to present its views clearly and precisely. The central bank’s communication policy is a big weapon in itself. Inflation rate may remain below 2% in September-October According to the SBI report, the inflation rate in September and October could remain below 2% and is likely to remain at 4% or less until FY2027. If GST rates are changed, inflation in October could fall to 1.1%, which would be the lowest since 2004. MPC’s last meeting was held from August 4 to 6 The last meeting of RBI’s MPC was held from August 4 to 6. In this meeting, RBI did not change the repo rate. It was kept unchanged at 5.5%. Prior to this, RBI had reduced the interest rate by 0.50% to 5.5% in June. RBI Governor Sanjay Malhotra had said that all members of the committee were in favor of keeping interest rates stable. This decision has been taken due to tariff uncertainty. The rate at which RBI lends to banks is called the repo rate. No change in this means that interest rates will neither increase nor decrease. Repo rate cut 3 times this year, a 1% reduction RBI had reduced interest rates from 6.5% to 6.25% in the February meeting. This cut by the Monetary Policy Committee was made after about 5 years. For the second time, the interest rate was also reduced by 0.25% in the April meeting. In June, rates were cut by 0.50% for the third time. This means the Monetary Policy Committee reduced interest rates by 1% in three instances. Why does the Reserve Bank increase and decrease the Repo Rate? Any central bank has a powerful tool in the form of a policy rate to fight inflation. When inflation is very high, the central bank tries to reduce the money flow in the economy by increasing the policy rate. If the policy rate is high, the loans banks receive from the central bank will be expensive. In turn, banks make loans more expensive for their customers. This reduces the money flow in the economy. When money flow decreases, demand falls, and inflation reduces. Similarly, when the economy goes through a bad phase, there is a need to increase money flow for recovery. In such a situation, the central bank reduces the policy rate. This makes the loans banks receive from the central bank cheaper, and customers also get loans at cheaper rates. RBI’s Meeting is Held Every Two Months The Monetary Policy Committee has 6 members. Of these, 3 are from RBI, while the rest are appointed by the central government. RBI meetings are held every two months. Recently, the Reserve Bank had released the schedule of Monetary Policy Committee meetings for the financial year 2025-26. A total of 6 meetings will be held in this financial year. The first meeting was held on April 7-9.