RBI MPC: Governor Sanjay Malhotra Announces 3rd Straight Rate Cut of 50 bps, Repo Now at 5.5%

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday announced a 50 basis point (bps) cut in the benchmark repo rate, marking the third consecutive rate reduction since February. The move reflects the central bank’s continued focus on supporting economic growth amid easing inflationary pressures and global uncertainties.

"The MPC decided to reduce the policy Repo Rate under the liquidity adjustment facility by 50 basis points to 5.5%. This will be with immediate effect. Consequently, the Standing Deposit Facility (STF) Rate shall stand adjusted to 5.25%. Marginal Standing Facility (MSF) rate and bank rate shall stand adjusted to 5.75%," said Malhotra.

The decision was unanimously taken at the bi-monthly MPC meeting, chaired by Governor Malhotra. He also noted that the MPC is now left with very limited space to support growth under present circumstances after reducing the policy repo rate by 100 bps in quick succession since February 2025. It has changed its policy stance from accommodative to neutral as well. A neutral stance allows the RBI to maintain flexibility in adjusting policy rates based on prevailing economic conditions.

"The fast-changing global economic situation, too, necessitates continuous monitoring and assessment of the evolving macroeconomic outlook," Malhotra added. However, he also acknowledged that the Indian economy is progressing well, broadly on expected lines, despite global uncertainties.

"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," he said.

The central bank also cut the cash reserve ratio (CRR) by 100 bps, a move expected to release ₹2.5 lakh crore into the banking system. CRR is the portion of a bank’s total deposits that must be maintained in liquid cash with the RBI, and a reduction in this ratio frees up funds for banks to lend or invest, thereby boosting liquidity in the economy. Reportedly, Indian banks last month approached the RBI seeking better flexibility in how much cash they must hold on a daily basis to meet reserve requirements. The lenders are hoping for a relaxation in the daily maintenance norms under the cash reserve ratio (CRR), which they say could ease short-term liquidity pressures.

"The RBI has delivered a surprise bonanza with an outsize rate cut and a CRR cut. Clearly, the central bank has utilised the space opened up with lower inflation to support growth and frontload its measures. The change in stance to neutral perhaps indicates that the RBI could now become data-dependent and remain on pause at least for the next two meetings. Any further rate cuts would be a function of how growth performs in H1 FY26," says Sakshi Gupta, principal economist at HDFC Bank.

The RBI also revised its retail inflation forecast for the current financial year to 3.7%, down from its April projection of 4%, signalling confidence in price stability. Government data shows consumer inflation eased to 3.16% in April, down from 3.34% in March, and remains well within the central bank’s comfort zone of 2–6%.

The RBI kept the gross domestic product (GDP) growth projection unchanged at 6.5% in the current financial year. The quarterly projections are: 2.9% for April-June, 3.4% for July-September, 3.9% for October-December and 4.4% for January-March.

Gupta further adds that the repo rate is likely to remain at 5.5% over the course of 2025 now.