RBI Governor Sanjay Malhotra Cuts Repo Rate to 5.5%, Shifts Policy Stance to ‘Neutral’ - Top Developments

In a significant move, the Reserve Bank of India (RBI) reduced the key policy repo rate by 50 basis points on June 6, 2025, from 6% to 5.5%.

Announced by RBI Governor Sanjay Malhotra at the conclusion of the three-day Monetary Policy Committee (MPC), this marks the third consecutive rate cut in 2025. Earlier this year, the MPC reduced the repo rate by 25 bps each in February and April.

Governor Malhotra emphasized that the rate cut is a reflection of the RBI’s growing confidence in easing inflation trends and its commitment to supporting economic growth in an uncertain global environment. “The MPC felt that frontloading of rate cut will boost growth,” he said.

RBI Shifts Policy Stance from ‘Accommodative’ to ‘Neutral’
Alongside the rate cut, the MPC made a key policy shift by changing its stance from ‘accommodative’ to ‘neutral.’ This signals a more calibrated approach moving forward, balancing the twin goals of growth and price stability.

Malhotra explained, “From here onwards, the MPC will be carefully assessing the incoming data and the evolving outlook to chart out the future course of monetary policy in order to strike the right growth-inflation balance.”

Inflation Outlook Improves, Revised Downward to 3.7%
The RBI’s latest inflation forecast shows an optimistic trend. The inflation outlook for the year has been revised downward from 4.0% to 3.7%, driven primarily by easing food prices and softer core inflation.

Headline Consumer Price Index (CPI) inflation continued its declining trajectory in March and April, with food inflation recording its sixth consecutive monthly decline. Fuel inflation saw a reversal of deflationary trends in March and April due to a recent hike in LPG prices but remains contained overall.
 

The near-term and medium-term outlook now gives us the confidence of not only a durable alignment of headline inflation with the target of 4%, but also the belief that during the year, it is likely to undershoot the target at the margin, Governor Malhotra stated.

Growth Projection Maintained at 6.5% Despite Global Headwinds
Despite global uncertainties and trade tensions, the RBI retained India’s GDP growth projection for FY26 at 6.5%. Quarterly forecasts remain steady, with slight variations:
Q1 FY26: 6.5%
Q2 FY26: 6.7%
Q3 FY26: 6.6%
Q4 FY26: 6.3%

Governor Malhotra acknowledged the challenging global environment but highlighted strong domestic factors: “Global growth as well as trade projections have been revised downwards. As global environment remains uncertain, it has become even more important to focus on domestic growth amidst sustained price stability.”

The RBI expects growth to be supported by government capital spending and robust rural and urban demand. However, exports may face headwinds due to the global slowdown, though services exports are expected to remain steady.

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Cash Reserve Ratio Cut Boosts Liquidity
In another key development, the RBI reduced the Cash Reserve Ratio (CRR) by 100 basis points from 4% to 3%. This cut will be implemented in four tranches and is expected to inject approximately Rs 2.5 lakh crore into the banking system.

This measure aims to boost liquidity, encouraging banks to lend more actively to productive sectors and thereby support economic growth.

Impact on Banking Rates
Following the cumulative 100 bps repo rate cut since February, most banks have passed on the benefits by reducing their repo-linked external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLRs). This is expected to lower borrowing costs for consumers and businesses.

Weather and Commodity Prices: Key Risks to Monitor
While the inflation outlook appears favorable, the RBI remains cautious about certain risks. The Indian Meteorological Department has forecasted an above-normal monsoon this year, which, while beneficial for agriculture, carries weather-related uncertainties.

Additionally, ongoing tariff tensions and global commodity price volatility, including crude oil, require vigilant monitoring. “We need to remain watchful to unpredictable monsoon and prevailing tariff uncertainties,” said the RBI in its statement.

Other Key Rates Adjusted
Alongside the repo rate cut, the Monetary Policy Committee adjusted other key interest rates:
Standing Deposit Facility (SDF) rate lowered to 5.25%
Marginal Standing Facility (MSF) rate and Bank Rate lowered to 5.75%
These adjustments align with the overall easing stance designed to foster credit growth.

What’s Next?
The RBI’s Monetary Policy Committee will meet next from August 4 to August 6, 2025, to review and guide further policy decisions.
Governor Malhotra concluded, “The MPC will continue to assess evolving macroeconomic conditions carefully to maintain the right balance between supporting growth and ensuring price stability.”

Top Developments 
Repo rate cut by 50 bps to 5.5%, third consecutive cut in 2025
Policy stance shifted from accommodative to neutral
Inflation forecast revised downwards to 3.7% for FY26
GDP growth forecast maintained at 6.5%
CRR reduced by 100 bps to 3%, to be phased in four tranches
Liquidity-enhancing measures expected to support credit and growth

Vigilance urged over weather-related risks and global tariff uncertainties

This decisive move by the RBI under Governor Sanjay Malhotra reflects a cautious yet proactive approach to navigating India’s economic path amid ongoing global challenges. The focus remains on sustaining growth momentum while keeping inflation well within target.