Bold Yet Cautious Move: RBI Cuts Repo Rate By 50bps To 5.5%; Borrowers To Gain

Mumbai: The Reserve Bank of India (RBI) on Friday announced a reduction in the repo rate by 50 basis points to 5.5%, slightly more than the 25-basis points cut that was widely expected.

The decision unanimously taken by the Monetary Policy Committee (MPC), chaired by RBI Governor Sanjay Malhotra, during its bi-monthly meeting is welcome news for borrowers, particularly home buyers, who can anticipate reduced EMIs on long-term loans. Banks will now have cheaper access to funds, which will encourage lending and consumption.

This is the central bank’s third consecutive repo rate cut.

However, savers and depositors are likely to feel the pinch as banks are anticipated to lower deposit rates following the reduction in lending rate. The rate cut is expected to favour the bond market, as declining interest rates generally increase bond prices. Yields on government securities may drop further, improving returns for current bondholders and increasing demand for fixed-income investments.

The MPC also lowered the inflation projection for 2025-26 to 3.7% from the earlier estimate of 4% in anticipation of a good monsoon. It, however, has retained the real GDP growth projection for 2025-26 at 6.5%.

The central bank has also decided to cut the cash reserve ratio of banks by 100 basis points to 3 per cent, releasing Rs 2.5 lakh crore of lendable resources to the banking system. It will be done in four tranches of 25 bps each starting from September 6, October 4, November 1 and November 29 this year.

The RBI governor said that India is making progress on both the inflation and growth fronts. Despite this, he emphasised the importance of focusing on domestic growth given the uncertain global environment. Malhotra highlighted that the recent MPC actions, including a 50 basis point cut in the repo rate to 5.5% and a change in the stance from ‘Accommodative’ to ‘Neutral,’ are aimed at propelling growth.

“After having reduced the policy repo rate by 100 basis points in quick succession since February 2025, the MPC also felt that under the present circumstances, it 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…,” he said.

While the 50 bps rate cut and CRR slash signal robust growth support, the neutral stance hints at caution ahead.

He added that all inflation parameters are under control and India’s economy is expected to grow at the rate of 6.5% this year.