The Repo Rate has been cut once again by the Reserve Bank of India (RBI), marking a significant shift in the central bank’s monetary strategy. In its latest policy meeting, the Monetary Policy Committee (MPC) slashed the repo rate by 50 basis points (bps), bringing it down from 6% to 5.5%, aiming to boost economic activity as inflation cools off. This move comes as part of a broader push to support growth in a slowing global economy and provide relief to borrowers with expected lower EMIs.
Third Consecutive Rate Cut in 2025
This is the third consecutive repo rate cut announced in 2025, signaling the RBI’s aggressive stance to revive domestic demand. With global headwinds and domestic investment lagging, the central bank is taking clear steps to inject liquidity and ease borrowing costs. This 50bps cut, which exceeded market expectations, reflects a determined effort to ensure economic stability.
The repo rate—the rate at which RBI lends to commercial banks—is a key tool in monetary policy. With this cut, the rate has now cumulatively fallen by 125bps this year alone.
Inflation Drops to 3.16%, Below Target
A major driver behind the repo rate cut has been the steady drop in India’s inflation rate, which now stands at 3.16%, well below the RBI’s target of 4%. With prices stabilizing across key sectors such as food and fuel, the central bank found room to ease rates without risking price volatility.
As Sanjay Malhotra, a key member of the MPC, stated during the announcement, “The inflation trajectory provides us headroom to support growth more decisively without compromising our mandate.” The move aligns with the RBI’s dual focus on price stability and economic growth.
GDP Growth Forecast Maintained at 6.5%
Despite global uncertainties, the GDP growth forecast for India has been retained at 6.5% for FY2025-26. The central bank expressed optimism about domestic consumption, rural demand, and increased capital expenditure by the government. The RBI believes that a lower repo rate will help accelerate credit growth and investment activity across sectors.
In addition to the rate cut, the central bank is also encouraging credit flow to priority sectors, particularly MSMEs and agriculture, to ensure inclusive growth.
Policy Stance Shifted to Neutral
Another key takeaway from the announcement was the shift in the monetary policy stance from “accommodative” to “neutral”. This suggests that the RBI will now take a data-driven approach to future rate decisions rather than following a pre-set easing path.
The Cash Reserve Ratio (CRR) was kept unchanged, but the central bank hinted at a possible CRR reduction in future policy reviews if liquidity conditions tighten further.
Reference Highlights:
As reported by The Times of India, the rate cut took the market by surprise, especially in its size, and is expected to lower home and auto loan EMIs. The Economic Times further noted that the decision was backed by a strong majority within the Monetary Policy Committee, with Sanjay Malhotra playing a crucial role in advocating the cut.
Conclusion:
With this latest repo rate cut to 5.5%, the RBI has made its intent clear: reviving economic momentum while keeping inflation under check. Borrowers can look forward to reduced EMIs, while businesses may benefit from better access to credit. The shift to a neutral policy stance ensures flexibility in navigating future challenges, making this a well-calibrated move in a complex economic landscape.
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