RBI MPC opts for a 'jumbo' rate cut to bring repo rate down to 5.5%, switches to neutral gear
Jun 6, 2025
Synopsis
RBI MPC 2025 Repo Rate Change: The Reserve Bank of India's Monetary Policy Committee (MPC) reduced the repo rate for the third consecutive time this year, led by Governor Sanjay Malhotra. The decision, made on May 5, 2025, follows previous 25-bps cuts in February and April, driven by a decline in retail inflation to 3.16% in April, prompting banks to lower lending rates.
The Reserve Bank of India's Monetary Policy Committee (MPC) on Friday slashed the repo rate by 50 basis points to 5.5%, marking the third consecutive rate cut this year. The committee also shifted its policy stance from 'accommodative' to 'neutral.' This 50-basis-point reduction is the sharpest rate cut since the 75-basis-point emergency easing during the Covid-19 crisis in March 2020.
RBI Governor Sanjay Malhotra, announcing the MPC’s decision, said the move was based on a comprehensive assessment of current macroeconomic conditions. The committee concluded its three-day deliberations today that began earlier on June 4, 2025.
Consequently, the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) were adjusted to 5.25% and the marginal standing facility (MSF) rate and the Bank Rate to 5.75%.
The repo rate- the key rate at which the central bank lends to commercial banks- was earlier cut by 25 basis points each in February and April.
Since February 2025, the RBI has lowered the policy repo rate by a total of 100 basis points. As a result, most banks have adjusted their repo-linked external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLR), making loans cheaper for borrowers. A reduction in the repo rate typically leads to lower EMIs for both retail and corporate borrowers.
This policy review comes amid a steady decline in inflation. According to the Ministry of Statistics and Programme Implementation, retail inflation eased to 3.16% in April, down from 3.34% in March, well below the RBI’s comfort level of 4%. The downward trend in inflation has raised expectations of a more accommodative stance from the central bank.
GDP retained at 6.5%
Despite global uncertainties, India’s growth projection for FY26 has been retained at 6.5%, with quarterly estimates unchanged.
India’s GDP rose by 7.4% in the March quarter, the fastest in four quarters, though FY25 growth settled at 6.5%, slightly lower than past years’ averages. Governor Malhotra acknowledged external challenges like geopolitical tensions and trade policy shifts but remained confident in the domestic growth trajectory, backed by a strong monsoon forecast and robust services activity.
The RBI also retained its quarterly GDP growth projections for FY2025-26 at 6.5% for Q1, 6.7% for Q2, 6.6% for Q3, and 6.3% for Q4- unchanged from its previous estimates.
"Services sector is expected to maintain its momentum. However, spillovers emanating from protracted geopolitical tensions, and global trade and weather-related uncertainties pose downside risks to growth."
The Indian economy is progressing well, broadly on expected lines despite global uncertainties, he added.
Inflation forecast revised downwards
Citing a sustained decline in price pressures, the RBI cut its inflation forecast for FY25–26 to 3.7%, down from the 4% projected in April.
Malhotra noted that headline inflation hit a nearly six-year low in April, aided by falling food prices and fuel deflation. Core inflation also remained stable despite global commodity volatility.
The latest quarter-wise estimates are: 2.9% in Q1, 3.4% in Q2, 3.5% in Q3, and 4.4% in Q4. The central bank maintained that risks to inflation outlook are “evenly balanced.”
CRR slashed by 100 bps
In a major liquidity-boosting move, the RBI announced a phased 100 bps cut in the Cash Reserve Ratio (CRR)- from 4% to 3%- to be implemented in four tranches of 25 bps each starting in September:
This step is expected to inject around Rs 2.5 lakh crore into the banking system by November, enhancing banks’ lending capacity and lowering funding costs.
"We have decided to reduce the Cash Reserve Ratio by 100 basis points from 4% to 3% of net demand and time liability. This will be done in a staggered manner through the course of the year in four equal tranches of 25 basis points each, coming into effect the fortnight beginning September 6, October 4, November 1, and November 29 of this year."
Recap of April MPC meeting
In the previous MPC meeting held on April 7–9, the RBI cut the repo rate by 25 basis points, 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.
Governor Malhotra had then said, “After a detailed assessment of the evolving macroeconomic and financial conditions and outlook, the MPC voted unanimously to reduce the policy repo rate by 25 basis points to 6% with immediate effect.”
[The Economic Times]
