RBI slashes repo rate | In a move set to ease borrowing costs and invigorate the housing market, the Reserve Bank of India (RBI) has cut its key repo rate by 50 basis points, bringing it down to 5.5%. The decision was unanimously made during the central bank’s bi-monthly Monetary Policy Committee (MPC) meeting held from June 4 to 6, chaired by RBI Governor Sanjay Malhotra.
This rate cut comes as inflation falls within the RBI’s comfort zone, offering much-needed relief to borrowers, especially those with long-term home loans.
RBI Governor Highlights Economic Resilience
RBI Governor Sanjay Malhotra emphasized that while the global economic environment remains “fragile” with revised trade projections, India’s domestic outlook is robust.
“India’s strength comes from the strong balance sheets of the five major sectors. The Indian economy offers immense opportunities to local and foreign investors. We are already growing at a fast rate. We aspire to grow faster,” he said.
Malhotra noted that various economic indicators—including private consumption, industrial activity, and rural demand—remain strong, reinforcing optimism about sustained domestic growth despite international headwinds.
Inflation Falls, Outlook Stable
The RBI highlighted a significant drop in inflation, projecting retail inflation at 3.7% for the current financial year—down from the April estimate of 4%. Government figures indicate that inflation fell to 3.16% in April, from 3.34% in March, well within the central bank’s target range.
“Inflation has softened significantly,” said Malhotra, adding that both the near-term and medium-term inflation outlooks are stable. “Food inflation outlook remains soft, and core inflation is expected to remain benign.”
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GDP Growth Steady at 6.5%
Despite global uncertainties, the central bank has maintained its GDP growth forecast at 6.5% for FY2025. Quarterly growth projections are as follows:
Q1 (Apr–Jun): 2.9%
Q2 (Jul–Sep): 3.4%
Q3 (Oct–Dec): 3.9%
Q4 (Jan–Mar): 4.4%
The unchanged growth estimate reflects RBI’s confidence in India’s domestic demand and fiscal resilience.
CRR Cut to Release ₹2.5 Lakh Crore into Banking System
In addition to the repo rate cut, the RBI also slashed the Cash Reserve Ratio (CRR) by 100 basis points, enabling the release of ₹2.5 lakh crore of bank funds into the system. The CRR mandates the proportion of deposits banks must maintain with the RBI in liquid form. This move is expected to further stimulate credit availability and liquidity in the economy.
Malhotra also assured that India’s forex reserves stand at \$691 billion, enough to cover over 11 months of imports, underscoring the country’s macroeconomic stability.
Rate Cut Follows April Reduction
This latest rate cut follows a 25-bps reduction in April, when the repo rate was brought down from 6.25% to 6%. With the June cut, the cumulative reduction over two MPC meetings now stands at 75 basis points, signaling a shift towards a more accommodative policy stance as inflation cools and growth momentum builds.
