The Reserve Bank of India on Friday lowered its key repo rate by 50 basis points, a larger-than-expected move that reflects growing concerns over global economic uncertainty and slowing momentum.
At the same time, the central bank altered its policy stance from ‘accommodative’ to ‘neutral’, indicating reduced scope for further easing.
With Friday’s decision, the Monetary Policy Committee has cut rates for a third straight meeting in 2025, taking the repo rate to 5.50%.
The RBI also reduced the cash reserve ratio (CRR) by 100 basis points to 3%, to be implemented in four phases between September and December.
No more rate cuts expected?
RBI Governor Sanjay Malhotra said the sharper-than-anticipated cut was intended to front-load policy support amid a volatile global environment.
“Certainty in the uncertain environment was necessary; hence the front-loading of rate cuts,” he told reporters, adding that recent data warranted a recalibration of the central bank’s approach.
“After having cut the policy rate by 100 basis points in quick succession since February 2025, the monetary policy committee also felt that under the present circumstances, monetary policy is now left with very limited space to support growth,” Malhotra said.
Five of the six MPC members supported the rate cut. The committee cited a shift in the growth-inflation mix as justification for its actions.
“The frontloading of policy rate reduction is welcome. However, given the likely global growth slowdown and trade related uncertainties, the RBI may carry forward the momentum of the present interest rate reduction cycle at least until the policy rate reaches 5%,” said DK Srivastava, Chief Policy Advisor, EY India.
Gaura Sengupta, Chief Economist at IDFC FIRST Bank, said that “the neutral stance indicates that the bar for further rate cut is higher but isn’t completely off the table.”
Sengupta said that she does not expect another rate cut in the next few meetings. “In the next few policies, we expect the RBI to remain on pause,” she added.
Growth and inflation figures remain encouraging
Retail inflation has eased faster than expected, falling to 3.16% in April—its lowest in nearly six years.
The RBI revised its inflation forecast for the current financial year to 3.7%, down from 4%.
The MPC said inflation is expected to remain aligned with the central bank’s medium-term target of 4%, and could “undershoot the target at the margin.”
India’s economy grew 7.4% in the January-March quarter. The RBI projects GDP growth of 6.5% for the full financial year.
“Today’s monetary policy actions should be seen as a step towards propelling growth to a higher aspirational trajectory,” Malhotra said, noting a target range of 7–8% growth.
“As private investment keeps improving, the ongoing rate reduction cycle could incentivize private investment and take India’s potential growth closer to 7% in the next few years,” Srivastava said in an email statement to Invezz.
Financial markets reacted sharply to the unexpected size of the rate cut and the central bank’s signal that the easing cycle may be nearing an end.
The benchmark 10-year bond yield, after initially dropping 10 basis points, was steady at 6.19%.
The rupee was unchanged at 85.85, and equity benchmarks rose around 1% in choppy trade, with banking stocks leading the gains.
The post RBI delivers steepest rate cut in 5 years: experts weigh in on the possibility of more cuts appeared first on Invezz
