Several central banks used lower inflation print to cut rates despite growth concerns

Banks

The Reserve Bank of India’s (RBI) monthly bulletin, released on June 25, said despite growth worries, several central banks have used the headroom provided by the lower inflation prints to reduce policy rates.

“Amidst heightened concerns on their domestic growth outlook, several central banks utilised the headroom provided by lower inflation prints to further reduce policy rates,” the bulletin said.

Earlier this month, the RBI opted for a larger-than-expected cut, reducing the repo rate by 50 basis points (bps) to support growth.

Headline inflation rates among Advanced Economies (AEs) and Emerging Markets and Developing Economies (EMDEs) showed marked variations during April-May, driven mostly by country-specific factors.

In the monetary policy meetings held during May-June 2025, most central banks continued to lower policy rates amid heightened macroeconomic uncertainties.

Among AEs, New Zealand and South Korea reduced their policy rates by 25 bps in May, while the European Central Bank (ECB) and Sweden reduced rates by 25 bps in June meetings. Switzerland also reduced its key rate in June by 25 bps to zero amid domestic deflation.

On the other hand, Canada, Japan, the UK, and the US maintained status quo on policy rates in June amidst uncertain macroeconomic outlook, RBI bulletin added.

Several EME central banks undertook policy easing to support growth. In May, Indonesia and
South Africa reduced their policy rates by 25 bps each, while Mexico pared its benchmark interest rate by 50 bps.

In June so far, Philippines cut its benchmark rate by 25 bps. In contrast, Brazil delivered 25 bps rate
hike in June, following a 50 bps increase in May due to persistent domestic inflation, raising the policy rate to a near 20-year high.