RBI cuts repo rate by 0.5 bps, switches to neutral gear 

The Reserve Bank of India (RBI) unexpectedly cut its key repo rate by 50 basis points on Friday, making its three consecutive rate cuts this year. This move was taken by India’s Monetary Policy Committee (MPC) under the presence of Governor Sanjay Malhotra and is being commended by experts amid volatile global markets.

The repo rate now goes down to 5.5% after a cumulative cut of 100 basis points since February 2025. A recent change will help policy makers to set a new stance for various loans and expect interest rates to go down. The RBI governor said the move was based on a comprehensive assessment of current macroeconomic conditions.

RBI governor Sanjay Malhotra clearly said that the central bank is now left with limited room to support growth. “Amid heightened volatility in capital flows and exchange rates, coupled with constrained policy space, central banks of emerging market economies have a tougher task to stabilise their economies against global spillover in the global milieu, ” he added.

Within a three-day deliberation & intrinsic discussion, the committee concluded it on June 4 with a standing decision. While the standing deposit facility rate under the liquidity adjustment facility was adjusted to 5.25% and the marginal standing facility rate and the bank rate to 5.75%.

After this announcement, most banks have adjusted their repo-linked external benchmark based on lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLR), which makes loans cheaper for borrowers. A reduction in the repo rates helps borrowers to get loans and pay EMIs (corporate and retail borrowers) at low interest comparatively.

The repo rate is the key rate at which the central bank lends loans to all banks, including public and private.

Despite global uncertainties, India’s growth projection has been retained at 6.5% for FY26. Recently in the March quarter, the GDP rose by 7.4%, showing fast growth in four quarters, though FY25 growth settled at 6.5%. Malhotra acknowledged external challenges like geopolitical tension and trade policy shifts, but domestic growth remained on trajectory, backed by a strong monsoon forecast and robust services activity.