RBI repo rate cut: Key MPC decisions

The Reserve Bank of India (RBI) reduced the repo rate by 50 basis points to 5.5% on 6 June 2025. This repo rate cut is a bolder-than-expected move to stimulate economic growth.

Governor Sanjay Malhotra announced the decision after the Monetary Policy Committee (MPC) meeting, following two consecutive 25-basis-point cuts earlier in the year. Further, the MPC adjusted its policy stance from accommodative to neutral, reflecting a cautious approach amid global economic challenges.

Inflation, which eased to 3.16% in April, provided room for the RBI to prioritise growth, while the Cash Reserve Ratio (CRR) was lowered by 100 basis points to 3.5% to enhance liquidity in the banking system.

Impact of RBI repo rate reduction

The 50-basis-point RBI repo rate cut is expected to lower borrowing costs, which might reduce equated monthly instalments (EMIs) for home and auto loans. This follows a cumulative 100-basis-point reduction since February 2025, which has already prompted banks to adjust their lending rates. 

The decision comes as India’s GDP growth is projected to slow to 6.5% for FY26, down from an earlier estimate of 6.7%, driven by global trade uncertainties, particularly US tariffs. The real estate sector, facing a 28% drop in residential sales in the first quarter of 2025, anticipates relief from cheaper loans to spur demand, especially in affordable housing.

The MPC’s switch to a neutral stance signals a balanced outlook, with the RBI aiming to support growth while monitoring inflation, which is projected at 3.7% for FY26.

The CRR cut is expected to release additional funds into the banking system, encouraging lending and investment.

Governor Malhotra said, “The Indian economy is growing at a very fast pace, we are making all efforts to grow even faster in our vision of Viksit Bharat.” He noted that the front-loaded rate cut aims to ensure faster transmission of monetary policy benefits to the economy.

Market response and future outlook

Stock markets reacted positively, with the NIFTY50 rising 0.66% to 24,914 and the SENSEX climbing 517 points to 81,959 following the RBI repo rate announcement. The decision aligns with expectations of continued monetary easing, as inflation remains below the RBI’s 4% target. However, global factors, including US trade policies and geopolitical tensions, remain a concern.

The RBI repo rate cut by a larger-than-expected margin reflects confidence in managing domestic growth challenges. Still, the neutral stance suggests limited room for further reductions in the near term.

Economists had been divided, with some expecting a more conservative 25-basis-point cut, while others, including SBI Research, foresaw a “jumbo” 50-basis-point reduction. Governor Malhotra said, “We had to cut the repo rate by 50 bps, so we did it at one go.”

The RBI’s focus on liquidity and growth is expected to bolster consumer spending and support sectors such as manufacturing and real estate, which have been experiencing subdued performance. As global economic conditions evolve, the RBI’s next moves will likely hinge on inflation trends and external pressures.