Finance
RBI MPC Meeting Announcements June 2025: The Reserve Bank of India’s six-member Monetary Policy Committee (MPC) has cut the repo rate by a larger-than-expected 50 basis points to 5.50 percent, the third straight drop since February 2025. The MPC move attempts to increase GDP prospects while inflation stays below the 4% target. The rate drop will help borrowers, particularly those with home loans, but depositors and savers should expect reduced returns on bank savings in the coming months.
The central bank also reduced banks’ cash reserve ratio by 100 basis points to 3%, unleashing Rs 2.5 lakh crore of lendable resources into the banking sector.
The MPC, led by RBI Governor Sanjay Malhotra, has shifted its policy stance from ‘accommodative’ to ‘neutral’ in an effort to boost economic development. The RBI’s rate decrease move is likely to boost borrowing and investment, resulting in greater growth rates. The policy panel maintained its growth estimate of 6.5 percent but forecasted reduced inflation of 3.7% in the current year.
Why was the repo rate cut?
The main factor that led to the 50 bps rate cut is the fall in retail inflation. Headline inflation, as measured by year-on-year changes in the all-India consumer price index (CPI), moderated to 3.2 per cent in April, the lowest since July 2019, from 3.3 per cent in March. The easing in CPI has been driven by the sustained fall in food prices.
Economists believe that with inflation continuing below the 4% objective in the last three months (February, March, and April), as well as a strong drop in food inflation, CPI is likely to stay close to the 4% target over the next year, clearing the way for future rate decreases. The RBI has been tasked by the government under the flexible inflation targeting (FIT) framework to keep CPI at 4% with a +/-2% band.
Furthermore, the RBI forecast GDP growth of only 6.5 percent in the current fiscal year, at a time when trade tariff concerns with the United States have generated considerable economic uncertainty. “MPC felt that core inflation is expected to remain benign. Frontloading of rate cut will support growth… it’s imperative,” Malhotra said.
What’s the impact of rate cut on borrowers and savers?
As the Repo rate is decreased by 50 basis points, the external benchmark lending rates (EBLR) linked to it would fall by a corresponding amount. Borrowers would benefit from a 50 basis point reduction in equivalent monthly payments (EMIs) on home and personal loans.
Previously, following a 50 basis point drop in the repo rate since February 2025, most banks reduced their repo-linked lending rates by the same amount. Lenders have also reduced the marginal cost of funds-based lending rate (MCLR).
Following the fall in lending rates, banks are likely to reduce deposit rates. This will affect savings and depositors, who will see their returns fall.
The rate decrease is expected to benefit the bond market, as declining interest rates normally result in an increase in bond prices. Yields, particularly on government securities, may fall further, increasing returns for existing bondholders and driving up demand for fixed-income assets.
Potential borrowers’ EMIs could fall by Rs 800-1,200 per lakh, depending on whether they are on a floating-rate loan, improving their liquidity right away. However, deposit rates for conservative savings may fall from their current near-record levels of 2.7%, putting depositors at risk.
RBI retains GDP and inflation forecast?
The RBI also revised its projections on real gross domestic product (GDP) and inflation for FY2026.
According to the RBI, CPI inflation in 2025-26 is predicted to be 3.7%, down from the previous projection of 4%. The easing of supply chain pressures, softening of global commodity prices, and increased agricultural production as a result of a predicted above-normal south-west monsoon bode well for the inflation prognosis in 2025–26.
The expected real GDP growth rate for 2025-26 is 6.5 percent. The domestic economy accelerated in the January-March 2025 quarter, reaching a four-quarter high of 7.4%. For fiscal year 2024-25, the growth rate was 6.5 percent, a four-year low.
“The Indian economy is poised to sustain its position as the fastest growing major economy during 2025-26, supported by pickup in private consumption, healthy balance sheets of banks and corporates, easing financial conditions and the government’s continued thrust on capital expenditure,” the RBI’s annual report said.
Source: IE
