RBI Slashes Repo Rate by 50 bps to 5.5% as Inflation Falls Below Target

By siliconindia  |  Friday, 06 June 2025, 11:28:43 AM IST

RBI Slashes Repo Rate by 50 bps to 5.5% as Inflation Falls Below Target
  • RBI cuts repo rate by 50 basis points from 6% to 5.5% to boost economic growth.
  • Inflation falls to 3.2%, below RBI’s 4% target band, prompting a shift from accommodative to neutral policy stance.
  • Effectiveness depends on how quickly banks pass on benefits; RBI to closely monitor growth-inflation dynamics.
RBI Governor Sanjay Malhotra announced a significant 50 basis points cut in the repo rate on Friday, reducing it from 6% to 5.5% to stimulate economic growth. This move comes as inflation has eased below the Reserve Bank of India’s (RBI) lower target band of 4%, currently standing at 3.2%. The governor highlighted that this marks a cumulative 100 basis points reduction in the repo rate since February, prompting a shift in the RBI’s monetary policy stance from accommodative to neutral.
Lowering the policy rate is expected to reduce interest rates on bank loans, making borrowing more affordable for both consumers and businesses. This, in turn, is likely to boost consumption and investments, driving higher economic growth. However, the actual impact of the rate cut will depend heavily on how swiftly commercial banks pass these benefits on to borrowers.
The RBI Governor emphasized the need for vigilance, stating that the neutral stance will allow the central bank to closely monitor the evolving dynamics between growth and inflation. In light of the declining inflation, the RBI has revised its inflation forecast downward from 4% to 3.7%, reflecting a broad-based moderation in prices and a more durable alignment with the inflation target band.
This rate cut signals the RBI’s confidence in the improving inflation scenario while maintaining flexibility to respond to future economic developments. The focus now shifts to the banking sector’s response and the broader economic recovery in the coming months.

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