RBI Cuts Repo Rate by 50 bps, Shifts to Neutral Stance Amid Growth Support Push
Markets rally as inflation eases; Governor Malhotra highlights economic resilience and investment opportunity
RBI Surprises with 50 bps Rate Cut
In a stronger-than-expected policy move, the Reserve Bank of India (RBI) cut the repo rate by 50 basis points, taking it well beyond the predicted 25 bps cut, in a bid to support growth amid benign inflation and global headwinds.
- Announced on June 6 during the bi-monthly Monetary Policy Committee (MPC) review, this marks the third consecutive rate cut, indicating a decisive shift in policy direction.
- RBI Governor Sanjay Malhotra stated the move was front-loaded, aimed at ensuring momentum in domestic recovery while inflation remains subdued.
Policy Stance Turns ‘Neutral’ as Inflation Eases
The central bank shifted its stance from ‘accommodative’ to ‘neutral’, acknowledging both the space and constraints in supporting economic activity.
- Inflation is forecasted to undershoot the RBI’s target margin, currently pegged at 3.7%, aided by cooling global commodity prices and a stable domestic supply environment.
- Food inflation is expected to remain benign, further easing pressure on household spending.
Economic Fundamentals Stay Strong
Governor Malhotra painted an optimistic picture of the Indian economy, pointing to several indicators of resilience and opportunity:
- Private consumption is gradually rising, and the agriculture sector is performing robustly following a good harvest.
- Services sector momentum continues, while non-oil, non-gold imports have registered double-digit growth, signaling strong domestic demand.
- The RBI noted a significant increase in merchandise exports during April 2025, although trade policy uncertainty remains a concern.
Market Reaction Turns Positive
Financial markets reacted swiftly and positively to the announcement:
- The Sensex jumped 150 points, moving into the green shortly after the rate cut was revealed.
- Investor sentiment improved on signals of continued monetary support, macroeconomic stability, and low inflation risks.
Malhotra: India is a Beacon for Investment
Governor Malhotra emphasized India’s attractiveness for both foreign and domestic investors, noting macroeconomic stability across price, financial, and political fronts.
- “The Indian economy shows a picture of stability,” he stated, urging stakeholders to leverage the opportunities within a resilient economic environment.
With the rate cut exceeding expectations and a clear pivot to neutrality, the RBI appears ready to balance growth needs against inflation risks, providing room for economic momentum as global demand cools.
