In a move widely anticipated by market observers, the Reserve Bank of India (RBI) announced a 50 basis points (bps) cut in the repo rate on June 6, 2025, bringing it down to 5.5%. This marks the third consecutive rate cut this year as the central bank continues to respond to easing inflation and a changing macroeconomic environment.
Announcing the decision at the end of a three-day Monetary Policy Committee (MPC) meeting, RBI Governor Sanjay Malhotra highlighted that the cut was based on a comprehensive review of the prevailing economic conditions. Alongside the rate cut, the committee also shifted its policy stance from “accommodative” to “neutral,” signaling a more balanced approach going forward.
As a result of this decision:
The RBI implemented its first repo rate cut in five years in February this year, reducing the rate from 6.5% to 6.25%. This was followed by another 25 basis point cut in April, bringing the repo rate down to 6.0%. This has resulted in a total of 100 bps reduction since the beginning of 2025.
Following the cumulative rate cuts, most banks have already adjusted their external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLR). This means lower EMIs for retail and corporate borrowers, offering much-needed relief and a boost for consumption and investment.
Suggested read: Repo Rate Impacts on Home Loan
The central bank’s decisions come against a backdrop of moderating inflation. Retail inflation, as reported by the Ministry of Statistics and Programme Implementation, dropped to 3.16% in April, down from 3.34% in March, staying comfortably below the RBI’s 4% threshold. This downward trend has allowed for policy easing without significant concerns about inflation.
The RBI’s latest move indicates a shift toward maintaining policy flexibility amid evolving domestic and global economic conditions. While the stance has turned neutral, further actions will likely depend on future inflation trends, global uncertainties, and the pace of domestic economic recovery.
Source: Economic Times
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