RBI rate cut to spur growth amid easing inflation

On June 6, 2025, the Reserve Bank of India (RBI) announced a major policy shift by cutting the repo rate by 50 basis points to 5.50% and moving its stance from accommodative to neutral. This marks the third consecutive rate cut, aimed at boosting domestic demand and investment amid improving inflation trends and a challenging global environment.

In a significant policy adjustment on June 6, 2025, the Reserve Bank of India (RBI) reduced the repo rate by 50 basis points to 5.50%, marking its third consecutive reduction, alongside a shift in policy stance from accommodative to neutral, indicating positive shift towards supporting growth in improving inflation outlook. This decision indicates that India is utilizing its macroeconomic resources to stimulate domestic demand amidst a challenging global landscape.

The highlighted positive developments in inflation, with revised projections indicating a decrease to 3.7% from the previous estimate of 4%, thereby creating an opportunity to enhance demand and investment. This decision is anticipated to decrease borrowing costs, encourage private consumption, and strengthen sectors such as manufacturing and services. 

To boost durable liquidity in financial markets, the MPC decided to reduce the Cash Reserve Ratio (CRR) by 100 bps to 3% i.e. reduction will be made in four trances of 25 bps to the market to the tune of Rs. 2.5 lakh crore by December 2025. This will help in increasing lending capacity and lowering funding costs of the banks.

Private consumption and gross fixed capital formation have shown resilience. India’s real GDP growth for the fiscal year 2024–25 is projected at 6.5%, bolstered by strong domestic activity, robust agricultural performance. The capacity utilisation rising and government capex expanding, the RBI is providing a fertile policy environment for private sector revival. 

High-frequency metrics such as GST collections, E-way bills, and sales of passenger vehicles indicate a solid economic recovery. Investment indicators are also promising, supported by high capacity utilization and growth in capital goods. Looking ahead, a favorable monsoon season and ongoing policy support are anticipated to enhance demand in both rural and urban areas.

With the moderation observed in the trade deficit during Q4:2024-25, coupled with strong services exports and remittance inflows, the current account deficit (CAD) for 2024-25 is anticipated to stay low, However, India’s merchandise trade exhibited resilience in April 2025. The CAD for 2025-26 is projected to remain comfortably within sustainable limits. 

The India’s foreign exchange reserves stood at a US$ 691.5 billion (as on 30th May 2025)—sufficient to cover 11 months of import. The India attracts significant foreign investments, with gross FDI inflows increased to US$ 81 billion in FY2024-25. Hence, India’s external sector remains resilient as key external sector indicators continue to improve.

Despite the ongoing global uncertainties, the RBI has expressed confidence in India’s underlying macroeconomic strengths. This policy adjustment is a targeted effort to foster growth while ensuring price stability, thereby reinforcing a strong policy framework aimed at achieving sustained and inclusive economic expansion. 

Going ahead, India is expected to be stronger and resilient economy. The economy is expected to continue to grow robustly supported by strong domestic consumption demand and the private investments, said Centre for Advanced Trade Research, TPCI.