RBI policy: MPC cuts repo rate by 50 bps to 5.5%, shifts stance to neutral

RBI Monetary Policy Committee maintained its GDP growth forecast for FY26 at 6.5%, lowered inflation forecast to 3.7%

The Reserve Bank of India (RBI) on Friday cut the repo rate by 50 basis points to 5.50 per cent, marking the third consecutive reduction in 2025. The central bank also shifted its monetary policy stance from 'accommodative' to 'neutral', signalling a more balanced approach to managing growth and inflation going forward.

 

Following the rate cut, the Standing Deposit Facility (SDF) rate has been revised to 5.25 per cent, while the Marginal Standing Facility (MSF) rate and the Bank Rate are adjusted to 5.75 per cent.

 

The decision was taken during the 55th meeting of the Monetary Policy Committee (MPC), held from June 4 to 6, under the chairmanship of RBI Governor Sanjay Malhotra. The Governor emphasised that the Indian economy continues to display “strength, stability and opportunity” amid global concerns.

 

 

“The Indian economy is growing at a very fast pace, and all efforts are being made to grow even faster in our vision of Viksit Bharat,” he said.

 

Explaining the shift in policy stance, the RBI stated that the space for further monetary easing has narrowed after a cumulative 100 basis points in rate cuts since February. The move to a neutral stance allows the MPC to remain flexible and data-driven in future policy actions. 

 

India's economy grew by 7.4 per cent in Q4 FY25

 

India's economy grew by 7.4 per cent year-on-year in the last quarter of the financial year that ended on March 31 (FY25), surpassing expectations and driven by robust performance in the construction, manufacturing, and services sectors. However, the full fiscal year FY25 recorded a growth rate of 6.5 per cent, the lowest in four years, reflecting challenges in sustaining momentum.

 

RBI's GDP forecast for FY26

The RBI retained its GDP growth forecast for 2025-26 (FY26) at 6.5 per cent, despite mixed signals from the global economy and potential downside risks from geopolitical tensions and trade policy uncertainties. The quarterly growth projections also remain at:

 

Q1 FY26: 6.5 per cent 

 

Q2 FY26: 6.7 per cent 

 

Q3 FY26: 6.6 per cent 

 

Q4 FY26: 6.3 per cent 

 

The central bank cited strong momentum in investment activity, improved balance sheets across sectors, government capital expenditure, and a promising agricultural outlook as key drivers of growth.

 

Inflation remains below RBI's 4 per cent target

Retail inflation, measured by the Consumer Price Index (CPI), eased to 3.16 per cent in April 2025, down from 3.34 per cent in March, marking the lowest rate since July 2019. The inflation numbers have also remained below the RBI's medium-term target of 4 per cent for the third consecutive month.

 

This decline is attributed to a significant drop in food inflation, which fell to 1.78 per cent in April, compared to 8.7 per cent in the same month the previous year.

 

On the wholesale front, the Wholesale Price Index (WPI) inflation decreased sharply to 0.85 per cent in April, from 2.05 per cent in March, primarily due to declining prices in the fuel and power sectors.

 

FY26 inflation predictions by RBI

Headline CPI inflation dropped to 3.2 per cent in April 2025, its lowest level in nearly six years, driven largely by sustained declines in food prices.

 

The RBI expects inflation to remain benign, projecting CPI inflation at 3.7 per cent for FY26, down from its earlier forecast of 4 per cent. The quarterly inflation forecast stands as follows:

 

Q1 FY26: 2.9 per cent (revised from 3.6 per cent)

 

Q2 FY26: 3.4 per cent (revised from 3.9 per cent)

 

Q3 FY26: 3.9 per cent (revised from 3.8 per cent)

 

Q4 FY26: 4.4 per cent (maintained at 4.4 per cent)

 

Despite favourable food output and commodity price trends, the RBI cautioned that weather-related disruptions and evolving global tariffs could still pose risks. 

 

The next RBI MPC meeting is scheduled for August 4–6, 2025.