RBI Cuts Repo Rate by 50 Basis Points to 5.5%: Third Consecutive Rate Reduction in 2025

The Reserve Bank of India has delivered another significant monetary policy adjustment, reducing the benchmark repo rate by 50 basis points to 5.5% on June 6, 2025. This decision represents the third consecutive rate cut implemented this year, bringing the total reduction to 100 basis points since February 2025.

Complete Rate Structure Adjustment

The central bank has implemented a comprehensive adjustment across all key policy rates. The standing deposit facility rate under the liquidity adjustment facility has been set at 5.25%, while both the marginal standing facility rate and Bank Rate now stand at 5.75%.

This coordinated approach ensures consistency across the monetary policy framework and provides clear signals to financial markets about the RBI's commitment to supporting economic growth through accommodative monetary conditions.

Policy Stance Shifts to Neutral Territory

In a notable development, the Monetary Policy Committee has transitioned its policy stance from 'accommodative' to 'neutral'. This shift indicates the central bank's assessment that the economy has reached a stage where extreme monetary accommodation may no longer be necessary.

RBI Governor Sanjay Malhotra announced these decisions during the 55th MPC meeting conducted from June 4-6, 2025. The primary objective remains balancing sustainable economic expansion with effective inflation management.

Inflation Outlook Shows Encouraging Trends

The central bank has revised its inflation projections downward, reflecting improved price stability prospects. The Consumer Price Index inflation for FY 2025-26 is now projected at 3.7%, representing a significant reduction from the previously estimated 4.0% in April's monetary policy review.

Quarterly Inflation Projections

• Q1 FY26: 2.9% - indicating continued moderation in price pressures
• Q2 FY26: 3.4% - reflecting seasonal adjustments and demand patterns
• Q3 FY26: 3.9% - showing gradual uptick during festival season
• Q4 FY26: 4.4% - approaching the upper tolerance limit

Market Implications and Economic Impact

This latest rate reduction is expected to provide additional stimulus to economic activity across multiple sectors. Lower borrowing costs typically benefit both consumers and businesses, potentially boosting investment and consumption demand.

The banking sector is likely to see improved lending margins, while borrowers across segments may benefit from reduced interest rates on loans. Real estate, automobile, and other interest-sensitive sectors could experience increased demand following this monetary easing.

Strategic Economic Balancing Act

The RBI's decision reflects a careful calibration between supporting growth momentum and maintaining price stability. With inflation projections showing a manageable trajectory, the central bank has created space for continued monetary accommodation while signaling readiness to adjust policies as economic conditions evolve.

The shift to a neutral stance provides flexibility for future policy actions, allowing the MPC to respond appropriately to emerging economic developments without committing to a specific directional bias.

Financial markets and investors will closely monitor upcoming economic data to assess the effectiveness of these policy measures in achieving the desired balance between growth acceleration and inflation control.

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