RBI Slashes Repo Rate by 50 bps: Bold Move Amid Cooling Inflation and Stable Growth

In a significant monetary policy move, the Reserve Bank of India (RBI) on Friday cut the repo rate by 50 basis points to 5.50%, the RBI’s biggest rate cut in more than a year. The announcement followed a three-day meeting of the RBI’s Monetary Policy Committee (MPC), which aims to safeguard India’s economic growth amid inflationary pressures.

In 2025, this is the third rate cut, with a combined easing of 100 basis points since February. In addition to changing the repo rate, the Central Bank also changed the Cash Reserve Ratio (CRR) to inject more liquidity into the banking system and cut the CRR by 100 basis points to 3%.

The Beginning: On the Road to June 2025

India was embarking on 2025 with a stable outlook concerning per capita GDP growth, inflation, and forex reserves. However, early evidence shows that consumption and industrial production became slow after arriving in March. 

However, inflation had continuously declined, giving the RBI enough leeway to turn to a more supportive policy stance. After reasonable 25 bps cuts in Feb and April, more easing was expected in June, yet the 50 bps cut was a surprise reflecting RBI’s efforts to act with greater preemptive urgency.

RBI’s Recent Announcement:

The main takeaway from the MPC meeting on June 2025 is:

The repo rate cut will lower banks’ borrowing costs, which will flow through to consumers as lower EMIs and more business credit access. The CRR cut increases banks’ ability to lend by reducing the funds banks had to keep on their books as idle deposits.

Why is this policy-relevant now?

For Borrowers: Lower rates should mean lower EMIs, making this a good time to refinance a home loan or take on new credit.

For Businesses: Lower rates and better access to credit can benefit MSMEs and those in real estate and infrastructure sectors— the key drivers of employment, job creation, and GDP.

For the Economy: With global demand slowing, RBI intervention is necessary to ensure that domestic demand remains strong.

For Investors and Markets: Stock markets reacted positively, particularly through banking and NBFC stock price increases, as they expect higher credit demands and more liquidity.

Future Expectation

The next Monetary Policy Committee (MPC) meeting is scheduled for August 4–6, 2025. Although further rate cuts are not completely off the table and could happen in the future, it will depend on:

• The course of retail inflation over the monsoon months,
• Credit offtake for the key economic sectors and
• The global economic headwinds, most notably, movements in interest rates by the US Fed and ECB.

Markets are now pricing in a pause in August, with the central bank preferring to evaluate the impact of the cumulative 100 bps easing already delivered.

Final Thoughts: A Calibrated, Forward-Looking RBI

The June 2025 policy is bold yet appropriate, arriving at a sensitive moment for the Indian economy. For one, the RBI has indicated urgency with a severe rate cut and cut in the CRR while also signalling caution in its move to a neutral stance, which means a future-oriented, data-driven decision-making process.

Now, it is up to the banks to promptly pass on the benefits to their borrowers and the businesses to see how they will respond with improved financial conditions from access to credit and for inflation to behave itself.

In India’s path to recovery, the success of this policy is contingent on effective transmission: are banks transmitting to consumers, and will growth occur without ramming inflation back into the economy?

The RBI has made its move; now it is time for banks, businesses and borrowers to move aggressively.

Disclaimer:

This article is for informational purposes only, based on official updates as of June 6, 2025. Please consult a certified advisor or RBI’s official press release for financial decisions.