The Reserve Bank of India's Monetary Policy Committee (MPC) cut the repo rate by 50 basis points (bps)

The Reserve Bank of India (RBI) cut its key repo rate by a larger-than-expected 50 basis points on Friday, a third consecutive reduction. It also slashed the reserve ratio for banks as muted inflation provided space for policymakers to focus on supporting economic growth.

The Reserve Bank of India’s Monetary Policy Committee (MPC) panel cumulatively cut the repo rate by 100 basis points since its February policy review. However, RBI governor Sanjay Malhotra clarified that the central bank had limited room to support growth. Hence, the monetary policy stance was changed from ‘accommodative’ to ‘neutral.’ 

According to Malhotra, central banks of emerging market economies had a more challenging task to stabilize their economies against global spillovers in this “global milieu” amidst increased volatility in capital flows and exchange rates, coupled with constrained policy space. He added that the Indian economy presented a picture of strength, stability, and opportunity.

Malhotra claims price stability preserves purchasing power

#RBIMPC | 🚨 "There is stability on all three fronts – price, financial and political," says RBI Governor Sanjay Malhotra #RBI #RBIPolicy #SanjayMalhotra #RepoRate pic.twitter.com/dkKEvlk0GP

— Moneycontrol (@moneycontrolcom) June 6, 2025

Malhotra claimed that price stability preserved purchasing power, adding that there was stability on all three fronts – price, financial, and political. According to the RBI governor, the stability of prices imparted certainty to households and businesses in their savings and investment decisions. It also ensured congenial interest rates and financial conditions, all encouraging consumption, investment, and overall growth.

The Ministry of Statistics and Program Implementation reported that the RBI rate cut came amid a steady decline in inflation at a time when India’s GDP grew at 7.4% in the fourth quarter of FY 2024-25. The Ministry also disclosed that retail inflation eased to 3.16% in April, down from 3.34% in March and well below the RBI’s comfort level of 4%. India’s government estimated the full fiscal year FY 2024-25 GDP growth at 6.5%.

“This decision is in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 percent, while supporting growth.”

-Sanjay Malhotra, Governor of the Reserve Bank of India

The RBI cut the repo rate by 25 basis points in the previous MPC meeting held on April 7–9, from 6.25% to 6%. That followed a similar cut in February, from 6.5% to 6.25%, signaling the central bank’s pivot toward a pro-growth policy amid easing inflationary pressures.

RBI policy lifts market mood as Indian stock market saw a sharp turnaround

The Indian stock market saw a sharp turnaround after a flat start in the morning, with both benchmark indices gaining strength after the RBI policy announcement. The Sensex jumped 488 points or 0.60% to 81,930.37, while the Nifty climbed 168 points or 0.68% to 24,919.30, as investors cheered the central bank’s stance. 

The Nifty Bank index also surged nearly 500 points or 0.90% within minutes of the announcement, trading around 56,260.75. Sectors like banking, auto, and realty led the rally with gains of nearly 1%, lifting overall sentiment.

The RBI Governor said 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%. He pointed out that in the future, economic activity will continue to maintain momentum in 2025-26, supported by private consumption and traction in fixed capital formation. Atul Monga, the CEO and Co-founder of BASIC Home Loan, said the upcoming MPC meeting could be a key indicator of India’s broader economic recovery.

The RBI governor also said that in order to provide durable liquidity, the central bank had decided to reduce the cash reserve ratio (CRR) by 100 basis points to 3% from 4% earlier. He added that this will be done during the course of the year in four equal tranches of 25 basis points, each coming into effect from the fortnights beginning September 6, October 4, November 1, and November 29 of this year. The cut in CRR would release primary liquidity of about Rs 2.5 lakh crore to the banking system by the end of November 2025.

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