RBI slashes repo rate by 0.5% to boost growth
In a bid to spur growth at a time when inflation has come under control, the Reserve Bank of India's Monetary Policy Committee on Friday (June 6, 2025) voted 5:1 to slash the policy repo rate by a bigger-than-expected 50 basis points to 5.50% with immediate effect. This is the RBI's third repo rate cut since February and will further reduce the interest burden for borrowers but will also cut the interest earned on savings by depositors. Separately, the RBI also decided to reduce the cash reserve ratio (CRR) by 100 basis points (bps) over the course of this year to provide sufficient and durable liquidity to the banking system. This means that the percentage of deposits that banks must keep in reserve with the central bank has been cut, leaving more money available for lending. The cut in CRR would release primary liquidity of about ₹2.5 lakh crore to the banking system by December 2025. Besides providing durable liquidity, it will reduce the cost of funding of the banks, thereby helping in monetary policy transmission to the credit market, RBI Governor Sanjay Malhotra said in his statement.
The CRR will be reduced to 3% of net demand and time liabilities (NDTL) in a staggered manner, with four cuts of 25 bps each taking effect from the fortnights beginning September 6, October 4, November 1, and November 29. One basis point is equal to 0.01%.
'This decision is in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth,' the RBI said in the monetary policy statement.
The MPC believed that, despite global uncertainties, Indian economic activity will continue to maintain momentum in the financial year 2025-26, supported by private consumption and traction in fixed capital formation.
Taking various factors into account, real GDP growth for 2025-26 has been maintained and projected at 6.5%, with first quarter (Q1) growth of 6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.3%. The MPC also decided to change its policy stance from accommodative to neutral, leaving it free to raise repo rates if inflation trends change. 'After having reduced the policy repo rate by 100 bps in quick succession since February 2025, under the current circumstances, monetary policy is left with very limited space to support growth. Hence, the MPC also decided to change the stance from accommodative to neutral,' the Governor said.
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