RBI cuts repo rate by 50 bps to give boost to growth

The Monetary Policy Committee (MPC) under the chairmanship of Sanjay Malhotra, Governor, Reserve Bank of India on Friday (June 6, 2025) voted to reduce the policy repo rate by 50 basis points (bps) to 5.50% with immediate effect. 

Consequently, the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) shall stand adjusted to 5.25% and the marginal standing facility (MSF) rate and the Bank Rate to 5.75%. 

Also Read: A tough call: On the RBI MPC’s first policy review of 2025

“This decision is in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth,” RBI governor Sanjay Malhotra said in the monetary policy statement. 

Also read: RBI repo cut: Industry reactions

After having reduced the policy repo rate by 100 bps in quick succession since February 2025, under the current circumstances, monetary policy is left with very limited space to support growth. Hence, the MPC also decided to change the stance from accommodative to neutral. 

From here onwards, the MPC will be carefully assessing the incoming data and the evolving outlook to chart out the future course of monetary policy in order to strike the right growth-inflation balance. The fast-changing global economic situation too necessitates continuous monitoring and assessment of the evolving macroeconomic outlook, the Governor said.

Taking all various factors into account, real GDP growth for 2025-26 is projected at 6.5%, with Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.3%. The risks are evenly balanced.

CPI inflation projected at 3.7%

Also taking various factors into consideration, and assuming a normal monsoon, CPI inflation for the financial year 2025-26 is now projected at 3.7%, with Q1 at 2.9%; Q2 at 3.4%; Q3 at 3.9%; and Q4 at 4.4%. The risks are evenly balanced. 

The MPC observed that inflation has softened significantly over the last six months from above the tolerance band in October 2024 to well below the target with signs of a broad-based moderation. 

“The near-term and medium-term outlook now gives us the confidence of not only a durable alignment of headline inflation with the target of 4%, as exuded in the last meeting but also the belief that during the year, it is likely to undershoot the target at the margin,” the Governor said.

“While food inflation outlook remains soft, core inflation is expected to remain benign with easing of international commodity prices in line with the anticipated global growth slowdown. The inflation outlook for the year is being revised downwards from the earlier forecast of 4.0% to 3.7%. Growth, on the other hand, remains lower than our aspirations amidst challenging global environment and heightened uncertainty,” he added. 

“Thus, it is imperative to continue to stimulate domestic private consumption and investment through policy levers to step up the growth momentum. This changed growth-inflation dynamics calls for not only continuing with the policy easing but also frontloading the rate cuts to support growth. Accordingly, the MPC voted to reduce the policy repo rate by 50 bps to 5.50 per cent,” he added. 

Committed to provide sufficient liquidity

The RBI Governor said “The Reserve Bank remains committed to provide sufficient liquidity to the banking system. To further provide durable liquidity, it has been decided to reduce the cash reserve ratio (CRR) by 100 basis points (bps) to 3.0% of net demand and time liabilities (NDTL) in a staggered manner during the course of the year.”

“This reduction will be carried out in four equal tranches of 25 bps each with effect from the fortnights beginning September 6, October 4, November 1 and November 29, 2025,” he said.

The cut in CRR would release primary liquidity of about ₹2.5 lakh crore to the banking system by December 2025. Besides providing durable liquidity, it will reduce the cost of funding of the banks, thereby helping in monetary policy transmission to the credit market, he said.

.”I would like to reiterate that we will continue to monitor the evolving liquidity and financial market conditions and proactively take further measures, as warranted,” he emphasised.

Dr. Nagesh Kumar, Prof. Ram Singh, Dr. Rajiv Ranjan, Dr. Poonam Gupta and Sanjay Malhotra, voted to decrease the policy repo rate by 50 bps. Saugata Bhattacharya voted for a 25 bps cut in repo rate.

Economy progressing well

In his concluding remark Mr Malhotra said on both inflation and growth fronts, the Indian economy was progressing well and broadly on expected lines.

“Strong macroeconomic fundamentals and benign inflation outlook provide space to monetary policy to support growth, while remaining consistent with the goal of price stability,” he said.

“As global environment remains uncertain, it has become even more important to focus on domestic growth amidst sustained price stability. Accordingly, today’s monetary policy actions should be seen as a step towards propelling growth to a higher aspirational trajectory,” he pointed out.

“Here, I would like to highlight that there is no tussle between price stability and growth in the medium and long term. Price stability preserves purchasing power, imparts certainty to households and businesses in their savings and investment decisions and ensures congenial interest rate and financial conditions, all of which foster consumption, investment and overall activity,” he emphasised.

“Moreover, it is crucial for equitable growth and shared prosperity because its absence is disproportionately burdensome on the poor,” he said.

“I must also add that while price stability is a necessary condition, it is not sufficient to ensure growth. A supportive policy environment is vital. This is even more important during periods of high uncertainties such as the current times,” he added.

“At the Reserve Bank, therefore, while price stability remains the focus of monetary policy, we are not oblivious to putting in place complementary monetary and credit policies and regulations that support growth and prosperity,” he highlighted.