The RBI has gone all-out in its June 2025 monetary policy to turbo-charge the economy and boost consumption. It seems the central bank has emptied its bag of goodies for now after a 50 basis points cut in the repo rate against an expectation of a 25 bps cut, followed by an announcement of 100 bps cut in cash reserve ratio (CRR) in phased manner.
With 100 bps cuts since the February policy, many analysts, reading between the lines of the latest monetary policy statement, have inferred that the RBI might pause rate cut cycle for now. “While we see no scope of further cuts in near-term, it would be pertinent to keep an eye on fluid global markets and the evolving domestic cycle to assess any room for additional easing,” says Madhavi Arora, chief economist, Emkay Global. She underlines that RBI stance reversion to ‘neutral’ implies limited room for further easing.
Frontloading rate, CRR cut
RBI governor Sanjay Malhotra in the post-policy briefing explains why the Monetary Policy Committee (MPC), the rate-setting panel, went with a 50 bps repo rate cut and a 100 bps CRR reduction. The move is aimed at ensuring policy certainty, says Malhotra. He said they could have done the rate cut in tranches, but by frontloading a 50 bps cut, the RBI wanted to give a sense of certainty to the market.
To ease liquidity conditions and aid monetary transmission, the RBI announced a phased 100 bps cut in CRR from 4% to 3%, to be implemented in four tranches starting September 6. This is expected to release `2.5 lakh crore into the banking system. The 100 bps CRR cut was despite the liquidity being already in surplus. The RBI has infused `7.40 lakh crore of liquidity through open market operations (OMO) and FX swaps since January 2025
Biggest giveaway
The biggest giveaway though is the decision of the MPC to revert back to the ‘Neutral’ policy stance just a couple of months after shifting to the ‘Accommodative’ stance. Speaking to the media after announcing the MPC decisions, Malhotra said neutral (stance) will mean the rates can go either way. “It will depend on how the data comes in. If the growth is weaker, it can mean it will go down. If the growth is good, inflation is going up, the repo rate can go up,” clarified the governor.
During a media briefing, the RBI Governor clarified the change in stance indicates a ‘very limited space’ for further monetary policy action given the current economic circumstances of approximately 6.5% growth and a projected inflation of 3.7% for the current year, rising to around 4.5% next year.
The fact that all six Monetary Policy Committee (MPC) members agreed on this shift to neutral gives credence to the belief that the road for more rate cuts is over for now.Nomura in a note said the combination of a 50bp cut, a shift in stance to neutral and the CRR cut signals that the RBI’s MPC believes the existing space for policy easing has been largely exhausted, and they will be in a wait-and-watch stance now, with policy transmission the key objective.
“This suggests that, unless there are major economic surprises, the RBI will be on hold in August and beyond,” it said.
Cues from bond markets
The bond market has priced in the end of rate cut cycle, feel some analysts. “After having reduced the repo rate by 100 bps in succession since February 2025, under current circumstances, monetary policy is left with limited space to support growth, and this has led the bond markets to believe that the rate-cutting cycle has ended,” says Puneet Pal, head, fixed income, PGIM India Mutual Fund. As a result the yield curve steepened further, with longer-duration yields edging higher.
Longer-duration bond yields rose in anticipation of the end of the rate-cutting cycle with the aggressive frontloading of monetary easing. The benchmark 10-year bond yield ended at 6.29%, up 4 bps on Friday from previous day’s close, while yields were higher by 6–7 bps at the longer end of the yield curve (30 years and higher). Money market yields (up to 12 months maturity) were lower by 15-30 bps, and yields in the up-to-5-year maturity segment were largely stable.