RBI Could Cut Repo Rate for the First Time in Five Years

CLAT Current Affairs: RBI’s Expected Repo Rate Cut – Impact on Law & Economy

Why in News?

The Reserve Bank of India (RBI) is expected to reduce the repo rate by 25 basis points (bps) for the first time in nearly five years during the upcoming Monetary Policy Committee (MPC) meeting, scheduled from February 5 to 7, 2025. The repo rate, which influences borrowing costs and economic growth, has remained unchanged for two years. If implemented, this decision will mark the first major policy move under RBI Governor Sanjay Malhotra, who assumed office in December 2024.

This expected rate cut is attributed to declining inflation, slowing economic growth, and global trade uncertainties. The move will significantly impact credit availability, investments, and overall economic stability.

Introduction to Monetary Policy & Repo Rate

Monetary policy plays a pivotal role in shaping the economy by regulating inflation and liquidity. The repo rate, set by the RBI, affects bank lending rates, directly influencing businesses and consumers.

Since May 2022, the RBI had raised the repo rate by 250 basis points (2.5%) to combat inflation, bringing it to 6.5%. With inflation easing and economic growth slowing, policymakers are considering a rate cut to boost credit availability and financial activity.

A repo rate cut will impact homebuyers, businesses, and investors by reducing loan EMIs, thus fostering increased spending and economic expansion.

Impending Repo Rate Cut & Policy Impact

RBI is expected to reduce the repo rate by 25 basis points (bps), bringing it down from 6.5% to 6.25%.
A basis point (bp) equals one-hundredth of a percentage point.
This will be the first repo rate cut since 2020 and the first major monetary decision under RBI Governor Sanjay Malhotra.

Key Reasons for the Expected Rate Cut

Declining Inflation: Consumer Price Index (CPI) inflation fell to 5.22% in December 2024, down from 5.48% the previous month.
Slow Economic Growth: India’s GDP growth forecast has been revised to 6.6% for FY2025, compared to an earlier projection of 7.2%.
Global Policy Alignment: Other central banks have indicated rate cuts due to economic slowdown.

Union Budget 2025-26 & Rate Cut Expectations

Personal income tax cuts and TDS reductions have been introduced to boost disposable income.
The budget aims to encourage higher consumption and economic expansion, aligning with the expected rate cut.

Expected Rate Cut Cycle & Future Predictions

Economists foresee two consecutive repo rate cuts between February and April 2025, totaling 75 basis points.
Another potential rate cut may occur in October 2025, depending on economic conditions.

Global Trade Wars & Currency Impact

🇺🇸 US has imposed tariffs on Canada, Mexico, and China, intensifying trade tensions.
🇮🇳 Rupee depreciated beyond ₹87 per US dollar, affecting monetary policy decisions.
RBI’s liquidity measures include a $5 billion forex swap and open market operations.

Potential Impact of the Repo Rate Cut

Lower Borrowing Costs: Banks may reduce home loan, car loan, and business loan rates.
Lower EMI Payments: Borrowers could save on monthly installments, increasing spending power.
Boost to Business Investments: Companies may take more loans for expansion.
Stock Market Reaction: A rate cut can boost investor confidence, leading to market gains.

Market Lending Rates & Repo Rate Relationship

Since May 2022, the repo rate increased by 250 bps, causing a rise in bank lending rates.
External Benchmark Lending Rate (EBLR) surged by 225 bps in the same period.
Marginal Cost of Fund-Based Lending Rate (MCLR) rose by 175 bps, increasing borrowing costs.
With a repo rate cut, lending rates are expected to fall, benefiting borrowers.

RBI’s Recent Liquidity-Enhancing Measures

$5 billion forex swap to stabilize the Rupee.
₹60,000 crore worth of open market operations to increase liquidity.
₹50,000 crore worth of variable-rate repo operations to ease liquidity further.

Key Financial Terms & Explanations

Repo Rate: Interest rate at which RBI lends to banks.
Basis Points (bps): 1 bp = 0.01% change in interest rates.
Monetary Policy Committee (MPC): 6-member body that decides India’s interest rates.
CPI Inflation: Measures retail price changes, crucial in rate decisions.
EBLR & MCLR: Benchmark rates impacting loan and borrowing costs.
Forex Swap: RBI’s tool to stabilize the Rupee by buying or selling foreign currency.

Conclusion

The anticipated repo rate cut of 25 bps is a crucial policy shift aimed at stimulating economic growth amid declining inflation and global financial instability. This decision will benefit borrowers, investors, and businesses by making loans cheaper and increasing liquidity in the system.

Key Takeaways for CLAT 2026 Aspirants

First repo rate cut in nearly 5 years, likely reducing it to 6.25%.
Falling inflation (5.22%) and slow GDP growth (6.6%) are major reasons.
Global trade tensions and rupee depreciation are impacting monetary policy.
Lower lending rates will benefit businesses, homebuyers, and investors.
Stock markets may rally, supported by improved liquidity and credit availability.

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Created on February 15, 2025

RBI Could Cut Repo Rate

RBI Could Cut Repo Rate

The number of attempts remaining is 2

1 / 15

1. What effect does a repo rate cut have on inflation?

1. Increases inflation

2. Decreases inflation

3. No effect on inflation

4. Reduces fiscal deficit

A rate cut increases liquidity, leading to higher consumer spending, which can increase inflation over time.

2 / 15

2. What global factor is influencing the RBI’s decision?

1. Rising crude oil prices

2. US Federal Reserve’s rate cut expectations

3. Global trade war tensions

4. All of the above

The RBI is considering multiple global factors, including oil prices, US Fed decisions, and trade wars.

3 / 15

3. Why did the RBI announce a $5 billion forex swap recently?

1. To stabilize the Indian rupee

2. To boost foreign reserves

3. To attract foreign investment

4. To control rising inflation

The RBI conducted a $5 billion forex swap to stabilize the rupee, which had depreciated against the US dollar.

4 / 15

4. How does a repo rate cut impact stock markets?

1. Negative impact due to rising interest rates

2. Positive impact as liquidity increases

3. No impact on stock markets

4. Increases interest rates on fixed deposits

A repo rate cut boosts stock markets as borrowing becomes cheaper, encouraging business investments.

5 / 15

5. What impact will a repo rate cut have on home loan EMIs?

1. EMI payments will increase

2. EMI payments will decrease

3. EMI payments will remain unchanged

4. EMI tenure will increase

A repo rate cut reduces interest rates, leading to lower EMI payments for home, car, and personal loans.

6 / 15

6. What is the Marginal Cost of Funds-Based Lending Rate (MCLR)?

1. A fixed home loan interest rate

2. A benchmark rate determining loan interest rates

3. The deposit rate set by commercial banks

4. The savings account interest rate

MCLR is a benchmark rate used by banks to determine interest rates for loans, influenced by RBI’s repo rate.

7 / 15

7. What is the External Benchmark Lending Rate (EBLR)?

1. The interest rate fixed by private banks

2. The rate linked to government bonds

3. A lending rate tied to the RBI’s repo rate

4. The borrowing rate for international loans

EBLR is the lending rate directly linked to the RBI’s repo rate, meaning that a rate cut reduces borrowing costs.

8 / 15

8. How much did the repo rate increase between May 2022 and February 2023?

1. 100 bps

2. 150 bps

3. 200 bps

4. 250 bps

Between May 2022 and February 2023, the RBI hiked the repo rate by 250 basis points (2.5%) to control inflation.

9 / 15

9. What effect does a repo rate cut have on borrowing costs?

1. Increases borrowing costs

2. Decreases borrowing costs

3. Has no impact on loans

4. Increases interest rates on deposits

A repo rate cut lowers borrowing costs for businesses and consumers, making loans (home, car, and personal loans) cheaper.

10 / 15

10. What was India’s projected GDP growth for FY2025 before revision?

1. 6.6%

2. 7.2%

3. 5.8%

4. 8.0%

Initially, the GDP growth projection for FY2025 was 7.2%, but it was revised down to 6.6% due to economic slowdown.

11 / 15

11. What is the Monetary Policy Committee (MPC)?

1. A six-member RBI panel responsible for setting interest rates

2. A government body overseeing fiscal policy

3. A group of private banks setting lending rates

4. A committee regulating stock market transactions

The MPC is a six-member committee within RBI that decides interest rates based on inflation and economic growth.

12 / 15

12. Who is the current RBI Governor as of February 2025?

1. Shaktikanta Das

2. Sanjay Malhotra

3. Raghuram Rajan

4. Urjit Patel

Sanjay Malhotra took charge as RBI Governor in December 2024 and will oversee the upcoming monetary policy.

13 / 15

13. What is the primary reason for the expected repo rate cut?

1. Rising inflation

2. Declining inflation and economic slowdown

3. Strong GDP growth

4. Depreciating rupee

Falling inflation (5.22%) and slower GDP growth (6.6%) are the main reasons prompting the RBI to consider a rate cut.

14 / 15

14. How much is the RBI expected to cut the repo rate in February 2025?

1. 10 basis points

2. 25 basis points

3. 50 basis points

4. 100 basis points

The RBI is likely to cut the repo rate by 25 basis points (bps), bringing it down from 6.5% to 6.25%. A basis point is 0.01%.

15 / 15

15. What is the repo rate?

1. The rate at which commercial banks lend to RBI

2. The rate at which RBI lends to commercial banks

3. The rate at which banks lend to each other overnight

4. The fixed interest rate for home loans

The repo rate is the interest rate at which RBI lends money to commercial banks to manage liquidity and inflation.

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Created on February 15, 2025

ISRO successfully conducts its SpaDEX (Space Docking Experiment)

The number of attempts remaining is 2

1 / 20

1. How does ISRO's space docking contribute to future human space exploration?

1. Reduces interstellar mission costs.

2. Improves mission readiness.

3. Facilitates long-duration human stays.

4. Ensures space station assembly.

Space docking is key for assembling stations and enabling crewed interplanetary missions.

2 / 20

2. What is the expected launch year for the Bharatiya Antarix Station's first robotic module?

1. 2025

2. 2027

3. 2028

4. 2030

The first robotic module for India’s space station is expected in 2028.

3 / 20

3. What system enables autonomous rendezvous and docking in space?

1. Manual docking procedures.

2. Autonomous systems for docking.

3. Docking enabled via thrusters.

4. Sensors for manual docking.

Autonomous systems like NASA's Gemini tech enable precise docking maneuvers.

4 / 20

4. What is the maximum distance achieved during the controlled approach of the two satellites in ISRO's experiment?

1. 10 meters

2. 5 meters

3. 3 meters

4. 1 meter

The satellites were brought to a distance as close as 3 meters for docking.

5 / 20

5. Which country has launched a 40,000-ton naval ship in record time, demonstrating advanced manufacturing?

1. United States

2. India

3. China

4. Russia

China recently demonstrated superior shipbuilding capabilities in this area.

6 / 20

6. What term describes the sharing of electrical power between two docked satellites?

1. Thermal control transfer.

2. Sharing electrical power between satellites.

3. Electrical sharing between modules.

4. Thermal insulation sharing.

Sharing electrical power enhances efficiency and redundancy for docked satellites.

7 / 20

7. Which Indian lunar mission will involve docking capability for bringing back lunar samples?

1. Chandrayaan-3

2. Chandrayaan-4

3. Gaganyaan

4. None of the above

Chandrayaan-4 will rely on docking for lunar sample retrieval.

8 / 20

8. Which space docking capability is required for constructing the Bharatiya Antarix Station?

1. Refueling systems in space.

2. Launching space habitats.

3. Docking modules for the space station.

4. Transporting cargo to orbit.

Constructing space stations involves docking multiple modules in orbit.

9 / 20

9. What altitude were the satellites maintained at during ISRO's docking experiment?

1. 250 km

2. 400 km

3. 500 km

4. 600 km

The docking experiment maintained satellites at an orbit of approximately 500 km.

10 / 20

10. How many kilograms did each satellite used in ISRO's docking experiment weigh?

1. 150 kg

2. 200 kg

3. 220 kg

4. 500 kg

Each satellite weighed 220 kg as part of the SpaDEx mission.

11 / 20

11. What is the primary purpose of the docking capability for India's future lunar missions?

1. Docking is not critical for lunar missions.

2. To build space stations.

3. To transfer lunar samples to orbit.

4. To develop better propulsion systems.

Docking is essential for assembling modules and returning lunar samples to Earth.

12 / 20

12. Which two satellites were used by ISRO to demonstrate space docking?

1. SDX02 and SDX03

2. PSLV and SSLV

3. SDX01 and SDX02

4. GSAT and SDX02

ISRO used SDX01 and SDX02 to conduct its docking experiment.

13 / 20

13. What year did NASA first demonstrate space docking through the Gemini VIII mission?

1. 1965

2. 1966

3. 1970

4. 1972

Gemini VIII was the first successful docking mission by NASA in 1966.

14 / 20

14. Which of the following nations first demonstrated autonomous space docking?

1. United States

2. China

3. USSR

4. USSR

The USSR was the first to achieve autonomous space docking in 1967.

15 / 20

15. Why is docking capability critical for space exploration?

1. To create collision-free orbits.

2. To support human survival in space.

3. To return lunar samples to Earth.

4. To increase satellite lifespan.

It allows for assembling space stations, resupplying missions, and lunar sample returns.

16 / 20

16. What does 'low impact docking' signify in ISRO's context?

1. High velocity docking to avoid delays.

2. Precision landing mechanism for rovers.

3. Low impact docking to ensure precision.

4. Unplanned docking to simulate emergencies.

'Low impact' indicates reduced mechanical force during docking to ensure safety.

17 / 20

17. What is the name of the mission through which ISRO achieved space docking?

1. SpaDEx

2. Chandrayaan-4

3. Shakti

4. Gaganyaan

The mission, SpaDEx, showcased India's capability in space docking.

18 / 20

18. India became the ____ country to demonstrate space docking after the US, USSR, and China.

1. Third

2. Fifth

3. Fourth

4. Second

India is the fourth country to achieve this milestone.

19 / 20

19. What is 'space docking' in space exploration?

1. Joining two spacecraft in orbit.

2. Colliding spacecraft to test durability.

3. Connecting satellites for shared communication.

4. Detaching spacecraft for experiments.

Space docking involves joining two spacecraft in orbit for shared missions.

20 / 20

20. Which Indian organization recently achieved 'space docking'?

1. ISRO

2. NASA

3. USSR

4. European Space Agency

ISRO demonstrated this advanced maneuver to join two satellites in orbit.

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RBI Could Cut Repo Rate for the First Time in Five Years

CLAT Current Affairs: RBI’s Expected Repo Rate Cut – Impact on Law & Economy

Why in News?

Introduction to Monetary Policy & Repo Rate

Impending Repo Rate Cut & Policy Impact

Key Reasons for the Expected Rate Cut

Union Budget 2025-26 & Rate Cut Expectations

Expected Rate Cut Cycle & Future Predictions

Global Trade Wars & Currency Impact

Potential Impact of the Repo Rate Cut

Market Lending Rates & Repo Rate Relationship

RBI’s Recent Liquidity-Enhancing Measures

Key Financial Terms & Explanations

Conclusion

Key Takeaways for CLAT 2026 Aspirants

Role of Supreme Court, President, and Governor in Passage of State Bills

Know About – Subject-Wise Strategy for CLAT

Indian New Year Festivals

Must Know – Unpacking the tariff game Plan

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