AMN New Delhi, June 6, 2025
— In a significant move to boost economic momentum, the Reserve Bank of India (RBI) has slashed the repo rate by 50 basis points, bringing it down from 6% to 5.5%. This marks the third consecutive rate cut by the central bank in its ongoing efforts to stimulate domestic demand amid subdued inflationary pressures.
The announcement was made following the RBI’s bi-monthly monetary policy review held today. Alongside the repo rate cut, the RBI also reduced the Cash Reserve Ratio (CRR) — the percentage of total deposits banks are required to keep with the RBI — by a substantial 100 basis points, providing banks with additional liquidity to enhance credit flow in the economy.
Furthermore, the Marginal Standing Facility (MSF) rate and Bank Rate have both been revised to 5.75%, aligning with the downward trend in policy rates.
Policy Stance Shift: From ‘Accommodative’ to ‘Neutral’
In a notable policy shift, the central bank has moved its stance from ‘accommodative’ to ‘neutral’, signaling a more balanced approach going forward. While previous policy decisions had been heavily tilted towards stimulating growth, the change in stance suggests the RBI is now equally attentive to evolving inflation dynamics and global uncertainties.
RBI Governor Shaktikanta Das, in his post-policy press briefing, stated:
“The moderation in headline inflation and stability in core prices have created space for the central bank to take growth-supportive measures. However, a neutral stance gives us the flexibility to respond swiftly in either direction, depending on how the macroeconomic landscape evolves.”
Economic Backdrop: Sluggish Growth, Tame Inflation
The decision comes at a time when India’s economic recovery is showing signs of fragility. Industrial output has remained sluggish, private consumption is yet to regain pre-pandemic levels, and investment demand remains weak. On the positive side, inflation — particularly food and core inflation — has been well within the RBI’s target range of 2–6%, enabling the central bank to prioritize growth without compromising price stability.
Recent data shows that Consumer Price Index (CPI) inflation has remained around 4.1%, while Wholesale Price Index (WPI) inflation has cooled to under 3%, both contributing to the room for monetary easing.
Implications for Borrowers and Markets
The repo rate is the rate at which the RBI lends to commercial banks, and a reduction in this rate is expected to lead to lower lending rates across the banking system. This could bring relief to homebuyers, corporate borrowers, and MSMEs by reducing EMIs and borrowing costs.
Markets responded positively to the news, with the BSE Sensex rising over 350 points intraday, and banking stocks leading the gains. Analysts expect the RBI’s move to boost credit offtake, especially in sectors like housing, automobiles, and infrastructure.
Cautious Optimism Going Forward
Despite the aggressive rate cut, Governor Das cautioned that external risks — such as volatile crude oil prices, global monetary tightening trends, and geopolitical developments — still pose challenges to India’s macroeconomic stability.
While the RBI’s neutral stance gives it room to maneuver in future policy decisions, much will depend on the upcoming inflation trajectory, fiscal developments, and the pace of economic recovery in the next two quarters.
Key Highlights:
- Repo Rate reduced by 50 bps to 5.5%
- CRR cut by 100 bps
- MSF and Bank Rate revised to 5.75%
- Policy stance shifted from accommodative to neutral
- Inflation under control, giving room for growth push
- Positive market reaction, expected boost to borrowing and spending
