Synopsis: In a bold move to stimulate the economy, the RBI has cut the repo rate by 50 bps to 5.5% and slashed the CRR by 100 bps, signaling a shift in stance from accommodative to neutral.
In a surprise announcement, the Reserve Bank of India (RBI) on Friday reduced the repo rate by 50 basis points (bps) to 5.5%, marking the third consecutive rate cut and the lowest repo rate in nearly three years.
Announcing the decision after the June 2025 Monetary Policy Committee (MPC) meeting, RBI Governor Sanjay Malhotra also revealed a significant 100 bps reduction in the Cash Reserve Ratio (CRR), to be implemented in four tranches starting September 2025.
Key Policy Rate Changes:
- Repo Rate: Reduced by 50 bps to 5.5%
- CRR: Cut by 100 bps to 3.0% (to be rolled out in 4 phases)
- Standing Deposit Facility (SDF): Reduced to 5.25%
- Marginal Standing Facility (MSF): Reduced to 5.75%
- Bank Rate: Also reduced to 5.75%
What This Means:
Repo Rate: This is the rate at which RBI lends money to commercial banks. A reduction lowers the cost of borrowing for banks, which is expected to translate into cheaper loans for businesses and consumers.
CRR: The percentage of a bank's deposits that must be held with the RBI in cash. Lowering CRR frees up liquidity for banks to lend more.
Why the Surprise Move?
RBI Governor Sanjay Malhotra said:
“The MPC felt that frontloading rate cuts was the most effective way to support growth in the face of persistent uncertainties.”
He added that while policy space is narrowing, the timing of stimulus is critical. The RBI had already reduced the repo rate by 25 bps each in February and April 2025, and CRR by 50 bps in December 2024.
Analysts React:
Most market participants had predicted a 25-bps cut, but some like SBI hinted at a possible ‘jumbo cut’ of 50 bps to revive credit demand and stimulate growth. The central bank’s shift to a 'neutral' stance indicates a more balanced policy approach moving forward.
Market Impact:
- Liquidity Boost: The CRR cut is expected to inject ?2.5 lakh crore into the banking system.
- Loan Rates Likely to Fall: Cheaper EMIs on home, auto, and personal loans.
- Stock Markets: Likely to react positively due to a growth-friendly monetary policy stance.
Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Please consult with a certified financial advisor before making investment decisions.
