In a widely expected move, the Reserve Bank of India (RBI) today cut the repo rate by 25 basis points to 6.0%, marking the second consecutive reduction in its ongoing rate-easing cycle. The decision, announced at the conclusion of the Monetary Policy Committee’s (MPC) first review meeting of FY26, reflects the central bank’s growing confidence that inflation is under control and its renewed focus on supporting economic growth.
The six-member MPC voted unanimously in favour of the rate cut, while maintaining a stance of “withdrawal of accommodation” to keep inflation expectations anchored. RBI Governor Sanjay Malhotra, delivering his first policy statement as governor, struck a balanced tone, acknowledging the twin challenges of reviving growth and managing external risks.
Data released in recent weeks bolstered the case for a rate cut. Retail inflation has softened close to the RBI’s 4% medium-term target, while GDP growth, though improving, remains below potential. India’s economy expanded 6.2% in Q3 FY25, up from 5.6% in the previous quarter, but the central bank noted lingering slack in consumption and private investment.
“The MPC took note of the improving inflation trajectory and felt it was appropriate to take further calibrated steps to support growth revival, especially in the context of global uncertainties and domestic liquidity constraints,” Malhotra said.
Despite the policy easing, liquidity remains tight in the banking system, prompting calls for a review of the RBI’s liquidity management framework. The central bank acknowledged this concern and announced additional fine-tuning measures to improve durable liquidity, with hints that Open Market Operations (OMOs) could be used more actively in coming months.
According to SBI Research, the system’s liquidity surplus is expected to reach around ₹1 lakh crore by the end of FY25, but market participants say more clarity is needed on the pace and mode of liquidity infusion.
The global context has grown more complicated following the U.S.’s imposition of steep new tariffs on imports from over 60 countries, including India and China. While the immediate impact on Indian exports may be mixed, analysts warn that if trade tensions escalate further, global growth and inflation could be affected.
RBI acknowledged the uncertainty surrounding the geopolitical environment and flagged it as a key risk going forward. “We are closely monitoring the impact of the new U.S. tariff regime and potential retaliatory measures on global supply chains and inflation dynamics,” said Malhotra.
With today’s rate cut, the RBI has now trimmed rates by 50 basis points since February, and most analysts believe it may now pause in the June policy to assess the evolving macroeconomic landscape. However, with inflation forecast to remain within the target band and fiscal stimulus beginning to play out, there may still be room for another cut later this year.
CareEdge Ratings and Bank of Baroda both project a total of 75 basis points in rate cuts over 2025, implying one more reduction before a prolonged pause. Much will depend on the trajectory of core inflation, the rupee’s stability, and global oil prices.
Today’s move signals the RBI’s intent to nudge the economy back toward its growth potential without compromising on inflation vigilance. But as the world braces for the fallout from a renewed trade war and the U.S. Federal Reserve treads cautiously, India’s central bank must continue to walk a tightrope—supportive, yet watchful.