RBI surprises with a 50 bps repo rate cut to 5.5% and 100 bps CRR reduction to boost economy. Read how it impacts borrowers and savers at The Interview Times.
MUMBAI – In a bold move to spur economic growth, the Reserve Bank of India (RBI) announced a larger-than-expected 50 basis point (bps) cut in the repo rate, bringing it down to 5.5% from 6%. This marks the third consecutive rate cut in 2025, following 25 bps reductions in February and April, totaling a cumulative 100 bps reduction this year. The decision, made by the RBI’s Monetary Policy Committee (MPC) on June 6, 2025, was supported by five of its six members and aims to capitalize on low inflation to stimulate demand.
Key Takeaway: The RBI’s 50 bps repo rate cut and 100 bps CRR reduction are set to inject ₹2.5 lakh crore into the banking system, lowering borrowing costs and boosting sectors like real estate and MSMEs, though savers may face lower returns on fixed deposits.
CRR Slashed to Enhance Liquidity
In addition to the repo rate cut, the RBI slashed the Cash Reserve Ratio (CRR) by 100 bps to 3% from 4%, to be implemented in four equal 25 bps tranches starting September 6, 2025, and concluding November 29, 2025. This reduction is expected to release approximately ₹2.5 lakh crore of primary liquidity into the banking system, reducing the cost of funds for banks and enhancing credit availability. RBI Governor Sanjay Malhotra emphasized that this move supports growth while maintaining liquidity management, drawing from the successful CRR reduction during the COVID-19 period.
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Policy Stance Shifts to Neutral
The MPC also shifted its monetary policy stance from “accommodative” to “neutral,” signaling a cautious, data-driven approach for future decisions. With retail inflation easing to 3.16% in April 2025 and projected to average 3.7% for FY26, the RBI sees room to prioritize growth without stoking inflationary pressures. Governor Malhotra noted, “After having reduced the policy repo rate by 100 bps in quick succession since February 2025, monetary policy is left with very limited space to support growth.”
Impact on Borrowers and Savers
The rate cut is poised to benefit borrowers, particularly those with floating-rate loans such as home loans. For instance, a ₹50 lakh home loan over 20 years at 8.5% interest could see monthly EMIs drop by approximately ₹3,000, or borrowers could opt to reduce loan tenure, saving significant interest costs. Adhil Shetty, CEO of Bankbazaar.com, stated, “Today’s 50 bps rate cut is likely to push home loan rates closer to the sub-8% level, benefiting prime borrowers with high credit scores.”
However, savers may face challenges as banks are expected to lower fixed deposit (FD) rates, particularly for short- and medium-term tenures. According to SBI Research, FD rates have already fallen by 30 to 70 bps since February 2025, with further reductions likely. Santosh Agarwal, CEO of Paisabazaar, advised, “Senior citizens, who enjoy an extra 25 to 50 bps, should consider locking in longer tenures to mitigate the impact.”
Boost for Real Estate and Banking Sectors
The real estate sector welcomed the decision, with the Nifty Realty index surging after the announcement. Sahil Agarwal, CEO of Nimbus Realty, commented, “The cumulative 1% repo rate reduction in six months, combined with the CRR cut, will catalyze real estate growth by lowering borrowing costs and expanding credit availability for homebuyers and developers.” The banking sector also saw gains, with the Nifty Bank index rising over 1.3%, though ICRA noted that banks’ net interest margins may face short-term pressure due to the steep rate cut.
Economic Context and Outlook
The RBI’s actions come amidst a robust yet slowing Indian economy, with GDP growth projected at 6.5% for FY26. Bank loan growth dipped to 9.8% in May 2025, prompting the RBI to front-load monetary stimulus to revive household demand and spur private investment. A normal monsoon forecast at 105% of the Long Period Average is expected to support rural consumption and agriculture, further bolstering economic stability.
Globally, central banks like the Federal Reserve (holding rates at 4.25%-4.50%) and the Bank of Japan (at 0.50%) are navigating their own economic challenges, but India’s proactive measures underscore its position as a resilient, fast-growing economy. As Governor Malhotra highlighted, “The Indian economy presents a picture of strength, stability, and opportunity, driven by strong balance sheets, digitization, and domestic demand.”