RBI Slashes Repo Rate By 50 bps To 5.5%; Signals Shift To Neutral Stance

OPINION PIECE BY SANJAY DAS

In a significant move aimed at supporting economic growth amidst global uncertainties, the Sanjay Malhotra-led Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) today announced a 50 basis points (bps) cut in the repo rate, bringing it down to 5.5% from the earlier 6%. This marks the third consecutive rate cut within four months—following a 25 bps cut on February 7 and another 25 bps reduction on April 9.

This aggressive rate-cutting cycle reflects the RBI’s renewed emphasis on balancing growth and inflation at a time when the global economy remains volatile due to ongoing geopolitical tensions.

Loan borrowers stand to benefit substantially from the latest repo rate cut, as reduced lending rates will ease EMIs and inject additional disposable income into the economy—thereby stimulating consumption and investment.

Further bolstering liquidity, the RBI also announced a 100 bps reduction in the Cash Reserve Ratio (CRR), lowering it to 3%. This move is expected to infuse nearly ₹25 lakh crore into the banking system, enhancing the banks’ ability to extend credit and support economic activity.

However, the shift in monetary policy stance—from “accommodative” to “neutral”—signals a cautious recalibration by the central bank. While the move will aid credit expansion, it could pose challenges for banks in managing their Net Interest Margins (NIMs), particularly because a significant portion of their deposit base is locked in long-term fixed deposits at higher rates.

Overall, this dual move by the RBI—cutting both the repo rate and CRR—is poised to boost liquidity and foster growth, but it also underscores the delicate balancing act between monetary easing and banking sector profitability.

RBI MPC Outcome (June 2025)

🔻 Repo Rate Cut
RBI cuts repo rate by 50 basis points from 6% to 5.5%.

Exceeds market expectations of a 25 basis points cut to 5.75%.

Marks a cumulative 100 bps cut since February 2025, significantly easing lending conditions.

💸 Impact on Borrowers
Lower repo rate means cheaper loans and reduced EMIs, benefiting loan borrowers.

🧭 Policy Stance Change
MPC shifts monetary policy stance from “accommodative” to “neutral”.

Indicates reduced scope for further rate cuts in the near term.

🔍 Outlook & Assessment
MPC to closely monitor incoming economic data and global developments.

Emphasis on balancing growth and inflation amidst growing global uncertainty.

🌍 Global Economic Context
Decision comes amid global instability due to US President Donald Trump’s reciprocal tariffs.

Previous policy had warned of potential global economic turmoil from trade wars.

🏦 Liquidity Measures: CRR Cut
RBI decided to cut Cash Reserve Ratio (CRR) by 100 basis points, from 4% to 3%.

Staggered reduction in four tranches in 2025:
Sept 6: 25 bps
Oct 4: 25 bps
Nov 1: 25 bps
Nov 29: 25 bps

Expected to inject ₹2.5 lakh crore primary liquidity into the banking system by end-November 2025.

Views expressed here are those of Mr. Sanjay Das, veteran trade union leader and Chairman, Federation of Bank of India Officers’ Association