The Reserve Bank of India surprised the street with an outsized 50 basis points repo rate cut and changed its stance from 'accommodative' to 'neutral' to signal limited room for future rate cuts
Reserve Bank of India (RBI) governor Sanjay Malhotra arrives for a press conference after the monetary policy review at RBI headquarters in Mumbai on June 6, 2025.
Image: Indranil Mukherjee / AFP
In a move aimed to bring about certainty and confidence to markets, the Reserve Bank of India announced a bigger-than-expected repo rate cut of 50 basis points, reduced the Cash Reserve Ratio (CRR) by 100 bps, even as it stiffened its policy stance to ‘neutral’ from ‘accommodative’ to signal limited room for rate cuts in the coming months.
“We could have announced CRR later but we did it today so that banks are assured of liquidity,†RBI governor Sanjay Malhotra said. “The more certainty we have, the stronger our macros will be.†He also claimed that the central bank had won the war against inflation. “But there is scope to push the GDP rate further.†This is why five out of the six members of the rate-setting panel decided to front-load the rate cut. Only Saugata Bhattacharya voted for a 25 basis points cut in the repo rate in the June meeting.
The Monetary Policy Committee was clear that future rate cuts would be data dependent since it had already reduced the benchmark rate by 100 basis points in the current calendar year to 5.5 percent after maintaining status quo at 6.5 percent since February 2023. It had changed its policy stance from 'withdrawal of accommodation' to 'accommodative' in the April monetary policy meeting.
“Under the current circumstances, monetary policy is left with very limited space to support growth,†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.â€
Rahul Goswami, CIO & MD, India Fixed Income, Franklin Templeton, points out that by reverting its stance to neutral, the RBI signals that it may now pause to assess the full transmission of these cuts before considering further action.