In a significant move aimed at reviving economic growth, the Reserve Bank of India (RBI) has announced a 50 basis points cut in the repo rate, bringing it down to 5.50 percent. This marks the third consecutive rate cut by the central bank in 2025, totaling a 100 basis points reduction since February. Alongside this, the Monetary Policy Committee (MPC) has revised its policy stance from ‘Accommodative’ to ‘Neutral’, signaling a more measured and data-responsive approach amid changing macroeconomic indicators. To further support liquidity, the RBI has also reduced the Cash Reserve Ratio (CRR) from 4 percent to 3 percent, giving banks more room to lend and lower rates for borrowers.
These policy changes come at a time when inflation appears to be well under control. The Consumer Price Index (CPI) for April registered at just 3.2 percent, the lowest in nearly six years, while retail inflation stands at 3.16 percent, a level not seen since July 2019. The central bank now finds itself with more flexibility to focus on stimulating domestic demand and private investment without immediate inflationary concerns. The overall tone of the announcement suggests that the RBI is now prioritizing economic expansion while maintaining monetary stability.
Reacting to the latest decisions, Ashwani Dhanawat, Executive Director and Chief Investment Officer at Shriram General Insurance Limited, pointed out that the combination of the repo rate cut and the CRR reduction underscores the RBI’s intent to support growth through enhanced credit flow. He noted that the move could trigger increased borrowing and business activity across sectors. Dhanawat believes this policy shift, backed by low inflation, sets the stage for stronger consumer sentiment and greater disposable income, which could in turn lead to higher demand for insurance and other financial services as the economy regains momentum.
Vijay Kuppa, CEO of InCred Money, echoed a similar sentiment, observing that inflation is no longer the key concern for the central bank. According to him, the consistent moderation in food and fuel prices, combined with a favorable rabi harvest and an early monsoon, has prompted the RBI to revise its FY26 inflation projection downward to 3.7 percent from the earlier 4 percent estimate. Although the RBI has maintained its FY26 GDP growth forecast at 6.5 percent, Kuppa emphasized that the need to stimulate private consumption and capital formation is now a top priority. He added that the 100 basis points cut in CRR, when combined with the repo rate cut, enhances the banks’ ability to transmit lower rates effectively, potentially spurring both business investments and consumer borrowing.
Kuppa also highlighted that the MPC’s shift to a ‘Neutral’ stance suggests that further rate cuts are unlikely in the immediate future. He explained that future policy action will depend heavily on evolving economic data, particularly with respect to global trade trends and commodity price movements. On the personal finance front, he noted that borrowers can expect relief in the form of lower EMIs, while investors may need to act quickly to lock in fixed deposit rates before yields decline. Despite ongoing market volatility, he sees selective investment opportunities emerging in both debt and equity markets as the low interest rate environment matures.
The coordinated steps taken by the RBI reflect a timely and strategic policy intervention to energize the economy. With inflationary pressures easing and a robust liquidity injection through CRR cuts, the central bank has set the stage for stronger growth in the months ahead. Lower borrowing costs are expected to stimulate demand, accelerate the credit cycle, and foster new investment activity. As India navigates an evolving global economic landscape, these reforms position the country to sustain momentum and unlock new avenues for long-term economic resilience.
