RBI slashes repo rate by 50 basis points to spur growth

THEBUSINESSBYTES BUREAU

MUMBAI, JUNE 6, 2025

In a bold and growth-oriented move, the Reserve Bank of India (RBI) on Friday slashed the benchmark repo rate by 50 basis points, bringing it down from 6 per cent to 5.5 per cent. Announcing the decision, RBI Governor Sanjay Malhotra said the rate cut aims to stimulate economic activity as inflation has dipped below the central bank’s lower tolerance band.

This is the second consecutive repo rate reduction this year, taking the total cut since February to 100 basis points. Reflecting this cumulative easing, the RBI has now changed its policy stance from ‘accommodative’ to ‘neutral’ to maintain flexibility in responding to evolving macroeconomic conditions.

In addition to the repo rate cut, Governor Malhotra announced a phased 100 basis points reduction in the Cash Reserve Ratio (CRR), to be implemented in four equal tranches beginning September 6 and continuing through November 29. This strategic move is expected to infuse a substantial ₹2.5 lakh crore into the banking system, significantly boosting liquidity and facilitating enhanced credit flow to businesses and consumers.

Malhotra emphasized that the decision comes amid a broad-based decline in inflation, with the latest figures placing the rate at 3.2 per cent. Consequently, the RBI has revised its inflation projection downward from 4 per cent to 3.7 per cent. The moderation in prices is attributed to favorable agricultural output, including record wheat production and higher pulse yields, alongside robust kharif crop arrivals and falling crude oil prices.

“The Indian economy remains resilient and dynamic,” the Governor said, highlighting strong fundamentals such as stable external balances, healthy corporate and banking sector balance sheets, and robust government finances. He reiterated that India continues to be the world’s fastest-growing major economy, driven by the triple engines of demography, digitalisation, and domestic demand.

While the rate cut is expected to lower borrowing costs and stimulate investment and consumption, Malhotra cautioned that its success depends on the transmission of these benefits by commercial banks to end-users. “It is now critical for banks to pass on the policy rate reductions swiftly to ensure effective support for the real economy,” he added.

The RBI’s dual focus on fostering growth while keeping inflation expectations anchored is seen as a prudent balancing act at a time when global uncertainties persist. The central bank’s move has been welcomed by market participants and is expected to set the tone for a more vibrant and investment-friendly economic environment in the months ahead.