Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday announced a significant 50 basis points cut in the policy repo rate, bringing it down to 5.5%, citing a sustained decline in inflation and a stable economic outlook. The decision was taken by the Monetary Policy Committee (MPC) during its 55th meeting held from June 4 to 6 in Mumbai.
“The reduction recommended by the MPC is for 50 basis points to 5.5 per cent. This is with immediate effect,” said Malhotra during the policy announcement.
Why the Cut? – Inflation Under Control
Governor Malhotra highlighted the key reasons behind the rate cut:
- Retail inflation has dropped to 3.16% in April, down from 3.34% in March, well below the RBI’s comfort level of 4%.
- Food inflation remains soft, and near-term as well as medium-term inflation alignments are within acceptable ranges.
- The early arrival of the monsoon season also played a positive role in shaping the economic outlook.
He noted that despite a fragile global economic backdrop with downward revisions to global growth, India remains stable across inflation, growth, and domestic demand indicators.
New Rates Effective Immediately
Following the repo rate cut, other benchmark rates have also been adjusted:
- Standing Deposit Facility (SDF) Rate: Revised to 5.25%
- Marginal Standing Facility (MSF) Rate and Bank Rate: Adjusted to 5.75%
This marks a second consecutive rate cut after the previous 25 basis points reduction in April 2025, when the repo rate was brought down from 6.25% to 6.0%.
What It Means for the Economy
The rate cut is expected to:
- Lower borrowing costs for businesses and individuals
- Boost consumer spending and investment
- Further stimulate growth in sectors such as real estate, manufacturing, and infrastructure
- Provide relief to borrowers, especially in housing and auto segments
The RBI also underlined that the Indian economy offers immense opportunity for global and domestic investors, especially amid global uncertainty.
Outlook Ahead
Governor Malhotra remained cautiously optimistic:
“There is stability on all fronts. Growth is improving, inflation is moderating, and domestic demand remains strong. The Indian economy is resilient and provides an immense opportunity for investors,” he added.
The RBI’s policy stance appears to have shifted towards accommodative, signaling a potential easing cycle if inflation remains under control in the coming quarters.