RBI cuts repo rate again: 5 key takeaways you must know

India Today

2 days ago

In a move that's likely to cheer borrowers, the Reserve Bank of India (RBI) lowered the repo rate on Friday, as global economic uncertainty continues.The decision came after the central bank's Monetary Policy Committee (MPC), headed by Governor Sanjay Malhotra, wrapped up its three-day meeting that began on June 4. The meeting was closely watched by economists, businesses, and investors.advertisementHere are five key takeaways from the June 2025 RBI policy meeting, explained in simple terms.REPO RATE REDUCED TO 5.5% — THIRD CUT IN A ROW
This is the third straight time the RBI has cut rates this year. After a 25 basis point cut in April, it has now gone a step further with a 50 basis point reduction. The repo rate is now 5.5%. This means loans, especially home and personal loans, could get cheaper if banks pass on the benefit to customers.According to Divam Sharma - Founder & Fund Manager at Green Portfolio PMS, "Although a 25bps rate cut was already priced in by the markets, a 50bps cut comes as a surprise. The unanimous decision is along expected lines, but the magnitude of the cut is significant. This move is likely to enhance liquidity in the system, making borrowing cheaper and encouraging companies to pursue capital expenditure."advertisementHe added, "Such investment could benefit the economy in the long term, particularly in an environment where trade wars and geopolitical realignments are becoming more pronounced than pandemic-related disruptions."OTHER KEY RATES ALSO ADJUSTEDFollowing the repo rate cut, the RBI has also lowered the Standing Deposit Facility (SDF) rate to 5.25% and the Marginal Standing Facility (MSF) and Bank Rate to 5.75%. These rates help banks manage short-term money needs and play a role in controlling liquidity in the system.GDP GROWTH FORECASTLooking ahead, the Indian economy is expected to stay on track in 2025–26, helped by steady consumer spending and rising investments in infrastructure. Strong rural activity should boost demand in villages, while the growing services sector is likely to support urban demand.Investment is set to rise due to better corporate finances, higher factory use, and government spending. While trade uncertainties remain a concern for exports, recent progress on trade deals, including the FTA with the UK, is a positive sign.On the supply side, a good monsoon and healthy farm-related sectors point to a strong agricultural outlook. But global tensions, weather changes, and trade risks may slow things down. Overall, GDP growth for 2025–26 is expected to be 6.5%, with quarterly growth ranging from 6.3% to 6.7%.advertisementSharma said, "The ongoing momentum in domestic consumption, corporate activity, and GDP growth will help sustain the economic trajectory and is a positive signal for the markets."SHIFT TO NEUTRAL STANCESince February 2025, the RBI has slashed the repo rate by a full 100 basis points. With this sharp reduction, it believes there's now less room left to cut rates further to support growth. So, the RBI has changed its policy stance from 'accommodative' to 'neutral'. In simple words, this means they're now more cautious and will wait and watch before making further changes.Divam Sharma said, "The additional 100bps cut in CRR is also a positive step, as it encourages banks to lend more freely. With FPI inflows slowing down, this infusion of liquidity is a timely and welcome move."INFLATION FORECAST REVISED FOR THE YEARCPI-based inflation has been softening, reaching 3.2% in April 2025, the lowest it's been in almost six years. This decline has been led by falling food prices, which have dropped consistently for six months. On the other hand, LPG price hikes pushed fuel prices up slightly. Still, the inflation outlook has improved, with the RBI lowering its forecast for 2025–26 to 3.7% from 4%.advertisementAssuming normal rainfall, the RBI now expects inflation to be 2.9% in Q1 (April–June), 3.4% in Q2 (July–September), 3.9% in Q3 (October–December), and 4.4% in Q4 (January–March)."The inflation projection at 3.7% also looks promising and gives further thrust to the growth push. This is a fantastic step by the RBI as we see headwinds emerging for corporates due to geopolitical tensions and global trade disruptions," noted Sharma.Must Watch