In an effort to inject momentum into the economy, the Reserve Bank of India (RBI) Friday lowered the repo rate by 50 basis points, a higher-than-the-market-expectation cut, and took it to 5.5 per cent. This is at a time when growth has decelerated to a four-year low and the GDP is estimated at 6.5 per cent for FY25.
With this fresh cut, the repo rate now stands at its three-year low, offering relief to home, auto, and corporate borrowers. The repo rate was previously at a similar level of 5.40 per cent on August 5, 2022.
Justifying the move, RBI Governor Sanjay Malhotra stated, "Following careful examination of the changing macroeconomic and financial development, as also the economic outlook, the Monetary Policy Committee (MPC) chose to cut the repo rate by 50 basis points."
Since February 2025, the repo rate has been cut by a total of 100 basis points by the central bank. A 25 basis point cut had already been delivered under the April monetary policy review, taking the rate down to 6 per cent.
Governor Malhotra noted that having made such a sharp cut in such a short time, "monetary policy is left with limited space to support growth."
This is the first time after the outbreak of the COVID-19 pandemic that the RBI has cut rates three consecutive times, beginning from February 2020.
Even with the rate cut, Malhotra kept the GDP growth forecast for the fiscal year at 6.5 per cent. On the inflation side, however, the RBI lowered its forecast to 3.7 per cent, a cut from the previous estimate of 4 per cent, supported by optimism of a good monsoon season.
He further stated that the MPC felt that the pre-emptive rate cuts would help recover the momentum in growth.
Also, the monetary policy of the central bank has been changed to 'neutral' from 'accommodative', which shows a more balanced stance in the future.
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