In an unexpected surprise, RBI cuts the the repo rate by 50 basis points to 5.5%

New Delhi (India) June 6: The Monetary Policy Committee (MPC) of the Reserve Bank of India dropped the repo rate by 50 basis points to 5.5% on Friday, the third time this year that the rate has been lowered. The committee has also changed its policy position from "accommodative" to "neutral." 

The MPC's decision was announced by RBI Governor Sanjay Malhotra, who said the action was founded on a thorough analysis of the macroeconomic environment at the time.

He said, “Amidst heightened volatility in capital flows and exchange rates, coupled with constrained policy space, central banks of emerging market economies have a tougher task to stabilize their economies against global spillovers in this global milieu. The Indian economy presents a picture of strength, stability and opportunity” 

"Price stability preserves purchasing power. It imparts certainty to households as well as to businesses in their savings and investment decisions, and it ensures congenial interest rate and financial conditions, all of which foster consumption, investment and overall activity and therefore growth.”

Mr. Malhotra claimed that although the global environment is still unstable and trade forecasts have been downgraded, the Indian economy is still growing strongly in spite of these concerns.

He said, "India's strength comes from the strong balance sheets of the five major sectors. The Indian economy offers immense opportunities to local and foreign investors. We are already growing at a fast rate. We aspire to grow faster.”

The RBI has reduced the policy repo rate by 100 basis points since February 2025. In order to make loans more affordable for borrowers, the majority of banks have modified their marginal cost of funds-based lending rates (MCLR) and repo-linked external benchmark-based lending rates (EBLRs). For both corporate and retail borrowers, a decrease in the repo rate usually results in reduced EMIs.

Since the repo rate is the rate at which the RBI loans to banks, a reduction in it should ideally result in lower borrowing rates for bank clients as well.

India's GDP expanded by 7.4% in the fourth quarter of FY 2024–2025, matching with the RBI MPC. The government projects a 6.5% GDP growth rate for the entire fiscal year FY 2024–2025.

Aadrika Tayal