Your EMIs To Get Cheaper As RBI Announces Jumbo Rate Cut - Top Developments

The Reserve Bank of India’s 50 basis point cut in the repo rate on June 6, 2025—from 6% to 5.5%—marks a bold shift in policy direction. It came alongside a 100 bps Cash Reserve Ratio (CRR) cut, signaling the central bank’s firm pivot to reviving domestic demand amid easing inflation and global uncertainties.

While this is the third rate cut this year, the size and timing of the June action has caught markets off guard.

From Inflation Control to Growth Push
RBI Governor Sanjay Malhotra described the rate cut as a frontloaded measure to boost growth. Inflation is no longer the primary concern—food prices have moderated, core inflation has eased, and the central bank has revised CPI inflation forecasts for 2025-26 downward from 4% to 3.7%.

Ajay Bagga, economist and market expert, said, “This is a landmark policy—reminiscent of the bold, visionary moves under Bimal Jalan or Y V Reddy. The 50 bps rate cut will unleash a massive monetary stimulus and foster demand. The CRR cut is an unexpected bonus, shoring up banks’ margins and injecting liquidity.”

CRR Cut: The Liquidity Engine
While the repo rate cut garnered headlines, economists suggest the CRR cut is the real liquidity driver. It instantly frees up funds for banks, improving transmission and boosting lending appetite.

Garima Kapoor, Chief Economist at Elara Capital, said the combination of repo and CRR cuts reflects an “assertive growth bias,” especially in the face of global headwinds. “A 100 bps CRR cut ensures quick rate transmission, supports banks’ net interest margins, and ensures ample liquidity to meet rising credit demand,” she said.

Transmission to the Real Economy
The effectiveness of monetary policy lies in its transmission—how fast and how fully banks pass on rate cuts to consumers and businesses. On this front, the RBI’s latest actions are expected to significantly improve the pace and depth of transmission.

Siddharth Sanyal, Chief Economist at Bandhan Bank, explained: “Today’s MPC meeting sprang several major surprises. The 50 basis point repo rate cut came in as a surprise against consensus and our expectation of a 25bp rate cut.” 

"The larger-than-expected rate cut, coupled with the CRR cut at the start of the busy season, brings focus on the transmission of monetary policy into the real economy. This move will not only push external benchmark-linked lending rates lower but will also reduce MCLR and deposit rates—bringing greater pace and intensity to the transmission.”

Read More - How Is RBI’s 'Aggressive' Rate Cut Driving Strong GDP Growth?

Investment Revival: The Bigger Goal
While inflation appears under control, India’s real economic challenge lies in reviving private sector investment. For now, government capital expenditure has driven most of the post-COVID recovery.

DK Srivastava, Chief Policy Advisor at EY India, said the RBI’s move can help rebalance the drivers of growth. “India’s GDP growth has averaged 7.8% since FY23, but private investment has lagged. With inflation down and borrowing costs falling, this is a clear opportunity to unlock private sector demand.”

Srivastava added that if the RBI maintains this easing cycle, “India’s potential growth could inch closer to 7% in the coming years.”

Stance Shift to ‘Neutral’: A Calibrated Pause Ahead?
The RBI’s move from an ‘accommodative’ to a ‘neutral’ stance indicates that future policy action will be more data-driven and cautious. It’s not a return to tightening—but neither is it a signal of more aggressive cuts to come immediately.
 

Gaura Sengupta, Chief Economist at IDFC FIRST Bank, interpreted this shift clearly:“The neutral stance shows the bar for further rate cuts is higher but not closed. We expect RBI to be on pause for the next few meetings. The CRR cut ensures system liquidity stays strong through H2FY26, so the need for additional OMO purchases is reduced.”

‘However, given the change in stance of monetary policy from ‘accommodative’ to ‘neutral’ and the RBI’s communication of very little space for more support from monetary policy, our expectation of a terminal repo rate of 5.50% in the current cycle remains largely unchanged,’ said Sanyal.

How Your EMI Gets Cheaper
For consumers, the good news is cheaper credit. With a push for faster transmission, banks are expected to lower floating-rate loan interest rates—home loans, auto loans, and personal loans should all get cheaper in the coming months. MCLR-linked rates will also soften.

On the flip side, deposit rates might decline as well, as banks sit on more liquidity. However, this will depend on competition among banks for deposits.
For the banking system, the CRR cut enhances profitability by improving interest margins and expands their lending capacity—an important lever as credit demand picks up.1

Cautious Optimism: Eyes on Monsoon and Global Risks
While the policy move is growth-focused, economists caution that risks remain. A weak monsoon or sudden global oil or trade shocks could force a reassessment.

Kapoor added that if inflation dips below 3.7% or growth risks intensify, another 25 bps cut can’t be ruled out. “But RBI will likely wait for the monsoon to play out and monitor global trade developments before taking the next step.”

A Strategic Growth Pivot
The RBI has delivered a bold, proactive policy at a crucial time. With inflation softening and growth momentum uncertain, this dual-pronged approach—a frontloaded repo cut and unexpected CRR cut—aims to stimulate the economy and restore private sector confidence.

The ball is now in the banks’ and industry’s court—to transmit, to invest, and to spend. If this cycle plays out well, the June 2025 policy could be remembered as the turning point for India’s next growth phase.