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RBI in its latest Monetary Policy Committee (MPC) meeting has announced a 50-bps cut in the repo rate from 6% to 5.5%. This is the third instance of the central bank reducing the repo rate in 2025 following two 25 bps rate cuts in February and April earlier this year.
The central bank has also changed its monetary stance from accommodative to neutral and has clarified that the monetary policy is left with very limited space to support growth.
Further, the RBI has reduced cash reserve ratio (CRR) by 100 bps to 3%.
It has cited the reduction in core inflation in the last six months and reduced growth due to challenging global environment as key challenges to the economy and aims to boost domestic consumption and investment through this move.
While explaining the rationale for the rate cut, RBI in its press release said, “The near-term and medium-term outlook now gives us the confidence of not only a durable alignment of headline inflation with the target of 4%, as exuded in the last meeting but also the belief that during the year, it is likely to undershoot the target at the margin. While food inflation outlook remains soft, core inflation is expected to remain benign with easing of international commodity prices in line with the anticipated global growth slowdown. The inflation outlook for the year is being revised downwards from the earlier forecast of 4% to 3.7%. Growth, on the other hand, remains lower than our aspirations amidst challenging global environment and heightened uncertainty."
