MUMBAI: In a bold move to stimulate growth and ease liquidity pressures, the Reserve Bank of India (RBI) on Friday announced a repo cut of 50 basis points to 5.5 per cent and announced a phased 100 basis point reduction in the cash reserve ratio (CRR), which together are expected to inject Rs2.5 lakh crore into the banking system.
Following this repo cut, this becomes the lowest repo rate in the past 30 months since November 2022, and marks the third reduction in 2025, taking the total easing this year to 100 basis points.
The CRR cut will be implemented in four tranches of 25 basis points each, starting from September and ending in December 2025. Governor Sanjay Malhotra said the staggered reduction was aimed at ensuring an orderly transmission of liquidity while giving the market time to adjust.
The RBI expects the move to significantly ease funding constraints for banks and support credit growth at a time when private sector demand is showing signs of revival.
Alongside these measures, the Monetary Policy Committee (MPC) changed its stance from ‘accommodative’ to ‘neutral’, signalling a calibrated approach to future policy action.
The six-member committee voted 5-1 in favour of the rate cut and unanimously backed the CRR reduction. Governor Malhotra said the shift in stance reflects improved confidence in the inflation trajectory, even as the central bank remains vigilant against global uncertainties.
Inflation forecast lowered
The RBI lowered its inflation forecast for 2025-26 to 3.7–4.0 per cent, citing sustained easing in food and fuel prices. The consumer price index (CPI) inflation for April came in at 3.16 per cent, the lowest in five years.
The central bank retained its real GDP growth estimate at 6.5 per cent for the fiscal year, with the strong 7.4 per cent growth in Q4 FY25 reinforcing expectations of a resilient domestic economy.
The central bank’s move comes amid rising expectations of monetary policy easing globally and a revival in foreign capital flows into emerging markets.
With US bond yields stabilising and crude oil prices remaining benign, the RBI found space to act more decisively. However, the neutral stance suggests the central bank may pause to assess the impact of these measures before taking further steps.
Malhotra also underlined the importance of improving transmission and advised banks to ensure that the benefits of rate cuts are passed on to borrowers. The RBI will monitor the effectiveness of the liquidity release and credit flow in the coming months.
The aggressive combination of rate cut and liquidity easing is likely to be welcomed by markets and businesses, especially in rate-sensitive sectors like housing, autos, and MSMEs.
Analysts said the RBI has front-loaded its support measures to ensure growth is not derailed amid persistent global headwinds.
