Business

IIE DIGITAL DESK : The decisive move to bolster economic momentum, the Reserve Bank of India (RBI) has reduced the key repo rate by 50 basis points to 5.50% during its June 2025 Monetary Policy Committee (MPC) meeting. This marks the third consecutive rate cut this year, totaling a 100 basis point reduction, and is the most substantial easing since the pandemic era. 

The central bank also announced a 100 basis point cut in the Cash Reserve Ratio (CRR), bringing it down to 3%. This measure, to be implemented in four staggered tranches between September and December, aims to enhance liquidity in the banking system, thereby reducing borrowing costs and stimulating credit growth.  

Governor Sanjay Malhotra emphasized that the policy shift is driven by a favorable inflation outlook and the need to support economic growth amidst global uncertainties. India's retail inflation has moderated to 3.16% in April, well below the RBI's medium-term target of 4%, providing the central bank with room to maneuver. 

The RBI has revised its monetary policy stance from "accommodative" to "neutral," signaling a more data-dependent approach moving forward. This change reflects the central bank's intent to balance growth support with inflation containment, especially as global economic conditions remain volatile. 

The rate cuts are expected to have a cascading effect on the economy. Lower interest rates will reduce equated monthly installments (EMIs) for borrowers, making loans more affordable and potentially boosting consumption in sectors like housing, automobiles, and consumer goods.  

Analysts view the RBI's actions as aggressive yet necessary. The central bank's proactive stance aims to invigorate the economy while maintaining monetary stability. However, economists caution that future rate cuts will depend on evolving economic data, particularly inflation trends and global economic developments.  

The RBI's latest policy measures reflect a strategic effort to stimulate economic growth by leveraging the current low inflation environment. By reducing the repo rate and CRR, the central bank seeks to enhance liquidity, lower borrowing costs, and encourage consumer spending, all while remaining vigilant of potential inflationary pressures and external economic risks.