Cash reserve ratio also cut by 100 bps; ₹2.5 lakh crore liquidity infusion planned
In a major relief for borrowers and a boost to economic activity, the Reserve Bank of India (RBI) has cut the repo rate by 50 basis points, bringing it down to 5.5%. The decision, announced at the bi-monthly Monetary Policy Committee (MPC) meeting held from June 4–6, was taken unanimously. This marks a sharper rate cut than expected, signalling a shift in policy stance as inflation remains within the central bank’s comfort zone.
RBI Governor Sanjay Malhotra, who chaired the meeting, said the global environment continues to face uncertainty, but India’s domestic fundamentals remain strong. “India’s strength comes from the robust balance sheets of five major sectors. Despite global challenges, the Indian economy is progressing well and offers immense opportunities to both local and foreign investors,” Malhotra stated.
Inflation Outlook Eases Further
Retail inflation for the current financial year is now projected at 3.7%, an improvement from the earlier estimate of 4%. According to government data, retail inflation eased to 3.16% in April, down from 3.34% in March. The RBI also noted that food inflation remains soft and core inflation is expected to remain benign in the near and medium term.
“The inflation outlook exudes confidence,” said Malhotra. “This has created the policy space to support growth while maintaining price stability.”
GDP Growth Projection Retained at 6.5%
The central bank has retained its GDP growth forecast at 6.5% for the ongoing financial year. RBI highlighted that various economic indicators are strong, citing a gradual increase in discretionary spending, healthy private consumption, and improving urban demand. Industrial activity continues to recover, and the services sector is expected to maintain its growth momentum.
CRR Reduced, Liquidity Boosted
In another significant move, the RBI also reduced the Cash Reserve Ratio (CRR) by 100 basis points. This is expected to release ₹2.5 lakh crore of funds into the banking system, providing ample liquidity to fuel credit growth. The CRR is the share of a bank’s total deposits that it must maintain with the central bank in liquid form.
With foreign exchange reserves standing at $691 billion—enough to cover more than 11 months of imports—India remains a resilient and attractive destination for investment, the RBI Governor added.
Real Estate Sector to Gain Momentum
The rate cut is expected to provide a boost to the housing sector. Vimal Nadar, Senior Director at Colliers India, said the 50 bps cut will translate into meaningful EMI savings and improve affordability for homebuyers, particularly in the mid-income segment.
“This could lead to improved buyer sentiment, increased property enquiries, and better conversion rates in urban markets,” he said. “It will also give developers greater confidence to roll out new projects, especially in low-to-mid-income categories.”
This is the second rate cut by the RBI this year. In April, the central bank had lowered the repo rate by 25 basis points, from 6.25% to 6%, as part of its effort to spur growth amid a stable inflation environment.
With the current move, the central bank has signalled a clear shift toward supporting economic expansion while maintaining macroeconomic stability. The twin decisions on repo rate and CRR are expected to not only reduce borrowing costs but also stimulate credit growth and private investment in the months ahead.
