In a surprise move aimed at reviving economic growth, the Reserve Bank of India (RBI) on Friday cut its benchmark repo rate by 50 basis points to 5.50 percent. This marks the third consecutive rate cut by the central bank in 2025 and brings the total reduction this year to 100 basis points.
Announcing the second bi-monthly monetary policy of FY26, RBI governor Sanjay Malhotra said the decision was driven by a significant softening in inflation, which has created space for front-loaded policy easing. The monetary policy stance was simultaneously shifted from 'accommodative' to 'neutral', signalling a more measured approach going forward.
In addition to the repo rate cut, the RBI also slashed the cash reserve ratio (CRR) by 100 basis points to 3 percent in four tranches, beginning September 6. This move is expected to release primary liquidity of ₹2.5 lakh-crore into the banking system.
India’s 10-year benchmark bond yield fell 2 basis points to 6.18 percent following the announcement, while the rupee remained largely stable at 85.82. Equity benchmarks, which had risen briefly after the rate decision, later pared gains to end about 0.1 percent lower.
“The cumulative reduction of 100 basis points so far this year leaves limited space for further cuts,” said Malhotra. “Going forward, the Monetary Policy Committee (MPC) will closely monitor income and price data to calibrate further policy actions.”
The six-member MPC, comprising three RBI officials and three external members, last cut the repo rate by 25 basis points in April, following a similar move in February—its first since May 2020. Alongside the repo rate, the standing deposit facility (SDF) now stands at 5.25 percent, while the marginal standing facility (MSF) and the Bank Rate are at 5.75 percent.
With headline inflation easing and core inflation expected to remain benign, the RBI has revised its inflation forecast for FY26 downward to 3.7 percent from the earlier projection of 4 percent.
Quarterly projections have also been adjusted. CPI inflation for Q1 FY26 is now seen at 2.9 percent (down from 3.6 percent), Q2 at 3.4 percent (down from 3.9 percent), Q3 slightly raised to 3.9 percent (from 3.8 percent), and Q4 maintained at 4.4 percent.
Despite persistent global headwinds and trade tensions, the RBI has retained its real GDP growth forecast for FY26 at 6.5 percent. The quarterly breakdown remains unchanged: 6.5 percent in Q1, 6.7 percent in Q2, 6.6 percent in Q3, and 6.3 percent in Q4.
India’s economy grew 7.4 percent in the January–March quarter, reflecting resilience in the face of geopolitical risks. However, Governor Malhotra noted that overall growth remains below expectations, requiring continued policy support.
Bigger-than-expected rate cut: A 50 basis point cut was delivered, larger than market expectations.
Policy stance changed: Shift from ‘accommodative’ to ‘neutral’.
CRR reduction: Cut by 100 basis points in four tranches, injecting ₹2.5 lakh crore liquidity.
Inflation forecast lowered: FY26 CPI now seen at 3.7 percent, down from 4 percent.
Growth outlook maintained: GDP growth for FY26 retained at 6.5 percent.
With limited room left for further cuts, the RBI is expected to tread cautiously in the months ahead, balancing growth concerns with inflation risks in an uncertain global environment.
