CHENNAI: In a stronger-than-expected move, the Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday slashed the repo rate by 50 basis points, bringing it down to 5.50%. The decision reflects the central bank’s growing concerns over a prolonged inflation fight and increasing growth-inflation trade-offs in a challenging global economic environment.
Delivering the policy statement, RBI Governor Sanjay Malhotra acknowledged that while inflation has broadly moderated, “the last mile in the disinflation process is proving more persistent than anticipated.” He emphasized that India’s macroeconomic fundamentals remain stable, but the MPC judged that additional policy support is warranted to sustain growth momentum.
Why the Bigger Cut?
The 50 bps cut—double the market expectation of 25 bps—comes amid:
Tepid domestic demand, especially in private consumption and rural spending.
Rising global bond yields and tightening financial conditions in developed markets.
Volatile crude oil prices, which continue to pose upside risks to inflation.
Lingering global uncertainty due to escalating trade tensions, including the impact of recent tariff actions by the US.
“The rate cut is a proactive step to shield India’s growth trajectory from evolving global headwinds,” Governor Malhotra said.
Policy Outlook
While the RBI did not commit to a defined rate path, it reiterated a “withdrawal of accommodation” stance, signaling that further easing would be data-dependent. The focus, officials said, would remain on achieving durable price stability without derailing growth recovery.
Market participants welcomed the move, with bond yields easing and rate-sensitive sectors like banking and real estate showing early gains.
Transmission and Impact
With a cumulative 75 bps repo rate reduction in 2025, commercial banks are expected to further adjust their External Benchmark-based Lending Rates (EBLRs) and Marginal Cost of Funds-based Lending Rates (MCLR), potentially easing borrowing costs for consumers and businesses.