The Reserve Bank of India’s Monetary Policy Committee (MPC) decided to cut repo rate by 50 basis points to 5.5 percent from 6 percent earlier. The jumbo rate cut comes after two successive rate cuts of 25 bps each in February and April.
The RBI MPC decided to change the stance to neutral.
As a result, the standing deposit facility (SDF) rate is changed to 5.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 5.75%.
Moneycontrol’s poll of economists and bankers showed that the RBI’s Monetary Policy Committee (MPC) will cut rates by 25 bps.
The mega rate cut comes as retail inflation has softened significantly below the RBI's medium term target of 4%. The RBI MPC reduced the inflation projection for FY26 to 3.7% to 4% earlier. The GDP growth projection remained unchanged for FY26 at 6.5%.
The RBI Governor Sanjay Malhotra also announced a 100 basis points CRR cut to be effected in 4 equal tranches of 25 basis points starting from September 6, October 4, November 1 and November 29.
The governor said that the Indian economy offers immense opportunities to investors on the back of demography, digitalisation, and domestic demand.
The rate cut by the RBI MPC, third in a row, comes in the wake of the government releasing the GDP numbers for the fourth quarter as well as full year of 2024-25.
The GDP growth beat estimates to rise at 7.4 percent in Q4. However, the full year FY25 growth fell to a four-year low of 6.5% even though it was in line with the second advanced estimates.
The rate cut signals that the RBI MPC is seized of the significance of boosting GDPgrowth at a time of heightened global uncertainty. The Trump administration's reciprocal tariffs, even though paused till July 8, cast a shadow over international trade.
India is negotiating a trade agreement with the US and the first tranche of the deal is expected to be finalised before the pause ends. The recent bulletin of the RBI has said that the trade deal could turn headwinds into tailwinds.
Speaking in the post-policy press conference, the RBI Governor said that the the MPC has a limited space to cut rates further. This explains the change in stance to neutral from accommodative earlier. The Governor also mentioned that the CRR rate at 3% is comfortable as of now and that the cut is needed to boost transmission, improve credit growth, and boost bank funding.
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