In a significant and widely anticipated move, the Reserve Bank of India (RBI) has cut the repo rate by 50 basis points (bps) in its June 2025 Monetary Policy Committee (MPC) meeting, bringing the policy rate down from 6.00% to 5.50%. This action is seen as a major relief to borrowers, especially amid the prevailing economic slowdown and tight financial conditions.

RBI Governor Sanjay Malhotra, addressing the media following the conclusion of the three-day MPC meeting held from June 4 to June 6, stated that the decision to reduce the repo rate was unanimously taken by all six members of the MPC. This marks the third consecutive rate cut since February 2025, bringing the total reduction to 100 basis points in just four months.

The repo rate, which is the interest rate at which the RBI lends money to commercial banks, is a key monetary policy tool to influence borrowing costs, liquidity, and consumer demand. With this cut, banks are expected to lower lending rates, which could stimulate consumer spending, increase investment, and support growth in sectors like housing, automobiles, and MSMEs.

RBI Changes Stance to 'Neutral' from 'Accommodative'

An equally critical takeaway from the June 2025 policy is the change in the RBI’s monetary policy stance from ‘accommodative’ to ‘neutral’. Governor Malhotra clarified that while the MPC has room to respond to emerging macroeconomic indicators, further cuts in the near term may be limited due to domestic and global economic uncertainties.

He stated, “Under the present circumstances, the MPC is now left with very limited space to support growth. Hence, the MPC also decided to change its stand from accommodative to neutral... The fast-changing global economic situation, too, necessitates continuous monitoring and assessment of the evolving macroeconomic outlook.”

The move to a neutral stance indicates that the RBI may pause further cuts and adopt a wait-and-watch approach, especially if inflationary pressures reappear or if the rupee weakens sharply amid global volatility.

Major Liquidity Boost: CRR Cut by 100 bps

In addition to the repo rate cut, the RBI also delivered a surprise move by slashing the Cash Reserve Ratio (CRR) by 100 basis points, which will infuse ₹2.5 lakh crore of liquidity into the banking system. The CRR is the percentage of a bank’s total deposits that must be held in reserve with the central bank.

This large-scale liquidity injection is aimed at supporting productive sectors of the economy, ensuring that banks have ample funds to lend to sectors such as manufacturing, agriculture, services, and especially micro, small and medium enterprises (MSMEs).

According to the RBI, this move is intended to “facilitate adequate flow of credit to priority and productive sectors,” which is critical as demand remains subdued in many parts of the economy.

Key Highlights of RBI’s June 2025 Monetary Policy Announcement:

• Benchmark lending rate (repo) reduced by 50 bps to 5.50%, effective immediately.

• Monetary policy stance changed from accommodative to neutral, signaling a more cautious approach.

• CRR cut by 100 bps to release ₹2.5 lakh crore of liquidity into the banking system.

• Retail inflation forecast for FY26 lowered by 30 basis points to 3.7%, suggesting price stability.

• RBI maintains GDP growth forecast for FY26 at 6.5%, showing confidence in economic recovery.

• Current Account Deficit (CAD) expected to remain within sustainable limits in FY26.

• Foreign exchange reserves slightly dipped to USD 691.5 billion (as of May 30), from USD 692.7 billion.

• Next Monetary Policy Committee meeting scheduled from August 4 to 6, 2025.

Implications for Borrowers and the Economy

The latest repo rate cut to 5.50% is expected to translate into lower EMIs for home loans, car loans, and personal loans, benefiting millions of borrowers across India. Most banks follow the external benchmark lending rate (EBLR) or repo-linked lending rate (RLLR) systems, meaning any reduction in the repo rate gets passed on to customers more quickly than in the past.

With the CRR cut adding significant liquidity, banks are better placed to extend credit to both retail and industrial borrowers, potentially boosting economic activity, employment, and private consumption.

This combination of interest rate reduction and liquidity enhancement comes at a critical juncture when global demand remains sluggish, and the Indian economy is showing early signs of recovery from post-pandemic challenges, supply chain issues, and geopolitical headwinds.

Inflation Outlook and External Factors

The RBI’s decision to lower the inflation forecast to 3.7% for FY26 suggests that it sees a benign price outlook, at least in the near term. The central bank believes that food prices, fuel costs, and imported inflation are likely to remain under control. However, global crude oil trends, currency volatility, and monsoon performance will be key factors to monitor in the coming months.

In its assessment, the central bank acknowledged that the global economic situation is highly dynamic, and its policies would remain flexible and responsive to both domestic and external shocks.

Conclusion

The RBI’s June 2025 MPC meeting marks a strong policy push towards supporting India’s growth recovery, with a repo rate cut to 5.50%, stance change to neutral, and CRR cut to boost liquidity. While this brings immediate cheer to borrowers and financial markets, the RBI has signaled that future decisions will depend on macro data, inflation trends, and global uncertainties.

For now, borrowers can expect cheaper loans, and industries can look forward to improved credit availability. However, both will need to stay alert as the RBI adopts a balanced and cautious approach going forward, making the August 2025 MPC meeting the next crucial checkpoint for the Indian economy.

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