RBI Cuts Repo Rate by 25 bps to 6% as MPC Shifts Policy Stance to 'Accommodative'

 In a widely anticipated move, the Reserve Bank of India (RBI) on Wednesday announced a 25 basis point cut in the repo rate, reducing it from 6.25% to 6.00%. The decision was taken unanimously by the six-member Monetary Policy Committee (MPC), reflecting a strategic shift in policy stance from “neutral” to “accommodative” amidst moderating inflation and increasing global economic headwinds.

RBI Governor Sanjay Malhotra, delivering the Monetary Policy Statement, emphasized the evolving global macroeconomic context—particularly the disruptive impact of U.S. President Donald Trump’s reciprocal tariffs on global trade—as a key backdrop to the committee’s decision. “The domestic growth-inflation dynamics warrant a calibrated yet growth-supportive approach,” Malhotra stated, reaffirming the central bank’s commitment to preserving financial stability while nurturing the recovery.

Key Announcements and Economic Projections

• Repo Rate: Reduced by 25 bps to 6.00%.

• Policy Stance: Shifted to “accommodative,” indicating potential room for further rate easing.

• CPI Inflation: Projected at 4.0% for FY2025-26, with quarterly estimates at 3.6% (Q1), 3.9% (Q2), 3.8% (Q3), and 4.4% (Q4).

• GDP Growth Forecast: Maintained at 6.5% for FY2025-26, with quarterly projections of 6.5%, 6.7%, 6.6%, and 6.3%, respectively.

The inflation outlook has improved considerably, aided by a substantial correction in food prices and declining crude oil prices. Governor Malhotra noted that the second advance estimates indicate record wheat output and robust rabi crop arrivals, laying the foundation for sustained food price stability. Expectations for a normal monsoon and the fading El Niño effect further reinforce this positive outlook.

“While inflation expectations have moderated, we remain vigilant against upside risks, particularly those arising from global volatility and potential weather-related disruptions,” Malhotra cautioned.

Liquidity, Growth, and Sectoral Outlook

The RBI reiterated its preference for maintaining a liquidity surplus to facilitate policy transmission. Recent liquidity management measures are expected to ensure smoother credit flow and lower borrowing costs. The latest rate cut is likely to reduce EMIs on loans, thereby enhancing consumer sentiment and supporting sectors sensitive to interest rates, such as housing.

Industry leaders welcomed the move. Boman Irani, President of CREDAI National, remarked, “This timely rate cut will significantly bolster housing affordability, particularly in the mid-income and affordable housing segments. It reflects the RBI’s pro-growth orientation in the face of global economic turbulence.”

The RBI also announced plans to harmonize regulatory guidelines for gold-backed loans across banks and NBFCs. Comprehensive rules covering prudential and conduct norms will be issued shortly.

From a macroeconomic standpoint, Governor Malhotra highlighted the resilience of India’s services exports, particularly in IT and transportation sectors. Remittance inflows remain strong, helping offset a widening trade deficit. The current account deficit is expected to stay within sustainable limits for FY2025-26.

External Headwinds and Policy Flexibility

The RBI’s policy review takes place amidst heightened geopolitical tensions and global financial volatility, exacerbated by the U.S. administration’s decision to impose a 26% tariff on Indian imports. According to RBI estimates and independent forecasts, these measures could shave 20–40 basis points off India’s GDP growth in the current fiscal year. Citi Research projects an overall GDP impact of 0.06% due to these tariffs.

Nevertheless, the RBI remains optimistic. “We are targeting non-inflationary growth built on resilient domestic demand, supported by improving supply chains and infrastructure momentum,” said Malhotra.

Market participants now anticipate further rate cuts this year. Analysts at Morgan Stanley suggest the repo rate could fall to 5.00% if global trade disruptions intensify. “Should downside risks materialize, the MPC has the flexibility to act decisively,” the report noted.

Market and Sectoral Implications

The policy announcement comes at a time when equity markets are experiencing volatility. Ahead of the announcement, the BSE Sensex fell over 350 points, and the Nifty50 dropped below 22,450. Financial markets are expected to closely monitor the RBI’s subsequent actions, particularly in managing liquidity and fostering transmission of rate cuts through the banking system.

Despite the reduction in policy rates, deposit rates have remained relatively unchanged. The weighted average domestic term deposit rate peaked at 6.91% in FY2024-25, with limited signs of a broad-based decline. Analysts expect banks to gradually recalibrate deposit and lending rates in the coming quarters.

Madan Sabnavis, Chief Economist at Bank of Baroda, noted, “Transmission will depend on individual banks’ funding profiles. Liquidity remains ample, so we may see a delayed but eventual reduction in lending rates.”

With inflation under control and global trade uncertainty looming, the RBI’s decision signals a proactive approach to cushioning the economy. The accommodative stance underscores the central bank’s readiness to respond flexibly to future shocks while supporting India’s long-term growth trajectory.

The next MPC meeting is expected to further evaluate domestic demand dynamics, external risks, and liquidity trends. For now, the RBI appears well-positioned to navigate the evolving landscape with a clear focus on macroeconomic stability and growth sustainability.