Reserve Bank of India has finally handed out a surprise that many were only tentatively speculating about a 50 basis point reduction in the repo rate to 5.50% from 6%. This is not merely a monetary policy action; this is a large, plain signal to the markets, banks, and houses: the RBI desires credit to move, and it desires it to move immediately.
Monetary Policy Committee (MPC) Chairman Governor Sanjay Malhotra made the announcement after three marathon MPC meetings. With inflation manageable and global winds turning cold, this move could unlock much-needed economic momentum. Home loan borrowers, in particular, might start to feel the difference in their monthly EMIs soon.
CRR Also Reduced to Boost Liquidity
In an equally bold move, the RBI decided to chop the Cash Reserve Ratio (CRR) by 100 basis points, rolling it down from 4% to 3% in a phased manner. That’s more than just numbers, it’s oxygen for banks.
Less cash locked up means more funds for lending. More lending means more business activity. It’s a cycle RBI is clearly trying to accelerate and fast. Banks, especially those squeezed for capital, are likely breathing a bit easier today.
GDP Growth Forecast at 6.5% for FY26
India’s central bank is following a path of optimism despite the turmoil in the global economy. RBI has targeted GDP growth at 6.5% in FY2026.
Here’s the breakdown:
Q1: 6.5%
Q2: 6.7%
Q3: 6.6%
Q4: 6.3%
That’s steady, stable, and given global tremors, quite remarkable. Inflation is also expected to simmer down. From the previous 4%, the new estimate is 3.7%. Food prices, which have been notoriously volatile, may finally show some discipline.
Global Worries Loom, But RBI Stays Focused
The global economy isn’t exactly in party mode. With President Trump throwing tariff bombs and global agencies trimming forecasts, things are jittery. Still, RBI seems determined to shield the domestic engine from foreign tremors.
Governor Malhotra acknowledged the tension but stressed resilience. He believes India’s fundamentals remain robust, and this policy shift reflects that confidence.
Banks Likely to Cut Loan Rates Soon
Following February and April’s smaller cuts, banks had already begun adjusting their interest rates. With this deeper cut, the ripple effect will likely grow.
Expect lower EBLRs and MCLRs across the board. If you’re a borrower, keep your eyes on your lender, cheaper credit could be around the corner.
Who’s Behind the MPC Decision?
The MPC has six members, three from RBI and three appointed by the government. The internal members include Governor Malhotra, Deputy Governor M. Rajeshwar Rao, and Executive Director Rajiv Ranjan. The external members are economists Nagesh Kumar, Sougata Bhattacharya, and Professor Ram Singh from Delhi School of Economics.
With these steps, the RBI has made its stance clear — support growth, lower inflation, and protect the common citizen.