In growth push, RBI cuts repo rate by 50 bps to 5.5%, slashes CRR by 100 bps

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Friday cut the repo rate by 50 basis points (bps) to 5.5 per cent, surprising markets, which had largely priced in a more modest reduction of 25 bps. Frontloading of the repo rate cut is aimed at faster transmission of policy rate to lending and deposit rates. This decision was welcomed by the bond market, but the exuberance was short-lived, as the RBI simultaneously shifted its policy stance from accommodative to neutral, citing limited room for further monetary accommodation. Simultaneously, it announced a staggered 100-bp reduction in the cash reserve ratio (CRR), bringing it down to 3 per cent of banks’ net demand and time liabilities a level not seen in normal times. The rate cut underscored the central bank’s commitment to supporting economic growth. RBI Governor Sanjay Malhotra said growth remained below aspirational levels amid a challenging global environment and heightened uncertainty. “It is imperative to continue to stimulate domestic private consumption and investment through policy
ASFI FORTNIGHTLY BULLETIN, JUNE – PART 1, 2025 3 levers to step up the growth momentum,” said Malhotra while announcing the monetary policy outcome.
“This changed growth-inflation dynamic calls for not only continuing with the policy easing but also frontloading the rate cuts to support growth. “The decision to cut the repo rate by 50 bps was backed by a 5:1 vote, with external member Saugata Bhattacharya favouring a 25-bp reduction. There was no vote required on the change in policy stance, which Malhotra said was unanimously agreed. The stance had been shifted from neutral to accommodative only in April, making Friday’s decision one of the quickest reversals in recent memory. “This thought had crossed our minds too that we had changed the stance in the last policy itself,” Malhotra said in response to questions. “We had the option to retain the accommodative stance and do nothing, but the action is what truly matters.”