In a bold move to bolster economic growth, the Reserve Bank of India (RBI) has announced a 50bps cut in the policy repo rate, reducing it from 6% to 5.50%. This marks the third consecutive rate cut in 2025, bringing the total reduction since February to 100 basis points.
The Monetary Policy Committee (MPC), led by RBI Governor Sanjay Malhotra, concluded its three-day meeting with a decision that aligns with its mandate to maintain medium-term consumer price inflation at 4% while supporting growth. The standing deposit facility (SDF) and marginal standing facility (MSF) rates have been adjusted to 5.25% and 5.75%, respectively. Highlighting limited room for further monetary easing after three consecutive cuts, the MPC unanimously agreed to shift its policy stance from ‘accommodative’ to ‘neutral’.
Inflation cools, growth remains a priority
Headline CPI inflation has dropped to a nearly six-year low of 3.2% in April, primarily due to a sustained decline in food prices. With a favourable monsoon outlook, rising agricultural output, and easing global commodity prices, inflation for FY2025-26 is now projected at 3.7%, revised down from the earlier forecast of 4.0%.
Despite strong Q4 FY2024-25 GDP growth at 7.4%, the RBI noted global uncertainties and trade tensions as persistent risks. Growth for FY2025- 26 is projected at 6.5%, with domestic consumption and investment expected to drive the momentum, aided by government capital expenditure and improved corporate balance sheets.
“Going forward, the outlook for the agriculture sector and rural demand is expected to receive further impetus from the expected above normal southwest monsoon rainfall. On the other hand, sustained buoyancy in services activity should nurture revival in urban consumption. The healthy balance sheets of banks and corporates, the government’s continued thrust on capex, elevated capacity utilisation, improving business optimism, and easing of financial conditions should help further revive investment activity,” the RBI Governor stated.
