RBI MPC Meeting June 2025: Repo Rate Trimmed to 5.50% as RBI Moves to Neutral Stance, Projects Inflation at 3.7%

Reserve Bank of India Monetary Policy Committee (MPC) released its first policy resolution of the financial year 2025-26, in April 2025. The RBI conducts six bi-monthly reviews each financial year to evaluate the state of the economy, focusing on factors like interest rates, inflation trends, and money supply. Check the full RBI MPC meeting schedule for the upcoming meetings here.

In a surprise move during its June 2025 bi-monthly monetary policy review, the Reserve Bank of India (RBI) slashed the key repo rate by 50 basis points to 5.50%. The Monetary Policy Committee (MPC), led by RBI Governor Sanjay Malhotra, also shifted its stance from ‘Accommodative’ to ‘Neutral’, reflecting increased confidence in the inflation trajectory while aiming to support economic momentum amid global trade headwinds. Let's take an overview of RBI MPC June 2025 Meeting key takeaways:

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1. RBI Surprises with 50 bps Rate Cut; Repo Down to 5.50%

The RBI cut the repo rate by 50 basis points to 5.50%, effective immediately. This move marks a proactive step to reinforce domestic growth at a time when global conditions remain volatile. Governor Malhotra emphasised that the sharper-than-expected softening in inflation created space for this larger cut. Headline inflation had dropped from above the upper tolerance band in October 2024 to just 3.2% in May 2025, prompting a re-evaluation of the monetary stance.

2. Policy Stance Turns ‘Neutral’ as Inflation Seen Undershooting Target

The RBI also altered its policy stance from ‘Accommodative’ to ‘Neutral’, signalling a calibrated approach going forward. The inflation forecast for FY26 was revised down to 3.7%, compared to the earlier projection of 4%. Governor Malhotra stated that benign trends in core and food inflation, coupled with broad-based moderation, lend confidence to a durable alignment of headline inflation with the 4% target.

3. Growth Outlook Intact at 6.5% for FY26

Despite global uncertainty, the RBI has retained its real GDP growth forecast at 6.5% for FY26. The quarterly projections are as follows:

• Q1: 6.5%
• Q2: 6.7%
• Q3: 6.6%
• Q4: 6.3%

Governor Malhotra noted that while external risks persist, domestic growth remains resilient, supported by robust consumption and steady investment activity.

4. Markets Cheer Aggressive Rate Cut

Domestic equity benchmarks rallied in response to the RBI’s dovish pivot. The Nifty 50 surged 0.68% to close at 24,920, while the Sensex jumped 0.70% to 82,010. The Bank Nifty outperformed, rising 1.28%, buoyed by expectations of improved liquidity and lending conditions. Earlier in the session, both the Nifty and Sensex were down nearly 0.2% ahead of the announcement.

5. Liquidity Management: CRR to be Cut by 100 bps in Phases

the RBI also announced a phased 100 basis point reduction in the Cash Reserve Ratio (CRR), bringing it down from 4% to 3%. The cut will be implemented in four tranches starting September 2025. This is aimed at releasing additional liquidity into the banking system to complement the rate action.

6. Inflation Outlook: Core Stable, Benign Trends Ahead

Core inflation has remained largely stable in recent months. Governor Malhotra projected a continued softening in prices for key consumption items. The central bank expects inflation to stay well below 4% for the remainder of the year, supporting purchasing power and consumer sentiment.

7. External Sector: CAD Seen Low; Forex Reserves Remain Strong

The RBI expects the current account deficit (CAD) for FY25 to remain low, with FY26 projected to stay within sustainable levels. India’s foreign exchange reserves stood at $691.5 billion as of May 30, providing over 11 months’ import cover and covering 96% of external debt obligations. Governor Malhotra reiterated that despite some moderation in net FDI, India continues to be an attractive destination for global capital.

8. Sectoral View: Economy Resilient, But Microfinance Stress Persists

While the overall macro environment has improved, the RBI acknowledged persistent stress in the microfinance sector. However, pressure in unsecured personal loans and credit card portfolios has eased. The central bank will continue to monitor sector-specific vulnerabilities closely.

9. Liquidity Monitoring to Continue

The RBI reaffirmed its commitment to proactive liquidity management. Governor Malhotra stated that the central bank would continue to assess financial market conditions and act as needed to ensure stability. This includes ongoing evaluation of capital flows, money market rates, and banking system liquidity.

Understanding the Impact of the RBI’s Repo Rate Reduction

• Impact on Borrowers – With the repo rate reduced to 5.50%, borrowing costs for home loans, car loans, and business credit are likely to ease. This will make financing more affordable and accessible for consumers and companies alike, potentially boosting demand.
• Impact on Investors – Lower interest rates often spur equity market gains by reducing corporate borrowing costs and enhancing profitability. Following the rate cut announcement, key indices rallied sharply, and Bank Nifty surged 1.28%, reflecting strong investor confidence in improved liquidity and lending conditions. Conversely, bond yields may decline, which could result in more modest returns in fixed-income markets.
• Impact on Inflation – The RBI has adjusted its inflation target downward to 3.7% for FY26, signaling expectations of sustained moderation in core and food inflation. This rate cut aligns with a stable inflation outlook, indicating that price levels are unlikely to be disrupted despite the easing stance.
• Impact on Economic Growth – By lowering borrowing costs, the rate cut aims to invigorate growth, particularly in interest rate-sensitive sectors such as real estate, manufacturing, and infrastructure. Enhanced credit availability should help stimulate demand and support the broader economy amid global uncertainties.
   

Looking Ahead

The June 2025 RBI MPC meeting has clearly marked a shift towards a pro-growth monetary policy framework. The unexpected 50 basis points rate cut, along with a downward revision in inflation projections and a neutral policy stance, signal the central bank’s confidence in India’s macroeconomic resilience. By announcing a phased CRR cut and continuing to monitor sectoral stress points, the RBI aims to maintain liquidity support while preserving financial stability. As global challenges linger, the central bank appears committed to navigating the growth-inflation trade-off with agility and precision. Investors and markets alike will closely watch how the RBI navigates the delicate balance between growth support and financial stability in the coming quarters.