RBI MPC Highlights: From Repo Rate Cut To GDP Growth Outlook – All You Need To Know

This decision comes as inflation remains comfortably below the RBI’s medium-term target of 4 per cent, providing space for a pro-growth monetary stance

Headline CPI inflation showed a downward trend

Source : PTI

The Reserve Bank of India (RBI) has slashed the key policy rate by 50 basis points, marking the third consecutive rate cut this year. The Monetary Policy Committee (MPC), led by RBI Governor Sanjay Malhotra, announced the move following its bi-monthly meeting that concluded on June 6. The repo rate now stands at 5.50 per cent, down from 6 per cent in April.

This decision comes as inflation remains comfortably below the RBI’s medium-term target of 4 per cent, providing space for a pro-growth monetary stance. “Global growth as well as trade projections have been revised downwards,” said Governor Malhotra, emphasizing the need to shield domestic momentum amid external volatility.

Policy Shift And Liquidity Support

The MPC has also revised its monetary stance from ‘accommodative’ to ‘neutral,’ signaling a more balanced approach going forward. Accompanying the rate cut, the Cash Reserve Ratio (CRR) has been reduced by 100 basis points to 3 per cent, to be implemented in four stages.

This year’s cumulative reduction in the repo rate now totals 100 basis points, starting from February 2025. In alignment with this policy easing, several commercial banks have lowered their lending rates, including both the external benchmark-based and marginal cost of funds-based lending rates.

Supporting Sustainable Growth

India’s GDP growth for FY 2025-26 remains projected at 6.5 per cent, supported by strong government capital expenditure and resilient rural and urban consumption. However, the RBI cautioned that a slowdown in global trade could weigh on exports, although services exports are expected to remain stable.

The quarterly growth projections are: Q1: 6.5 per cent, Q2: 6.7 per cent, Q3: 6.6 per cent, and Q4: 6.3 per cent.

Inflation Outlook And Food Prices

Headline CPI inflation showed a downward trend, falling from 4 per cent in February to 3.7 per cent in April. The RBI projects inflation to remain below 4 per cent in the near term, helped by a strong rabi harvest and healthy food supply conditions. Fuel inflation continues to remain in deflation, and core inflation has been largely stable.

Quarterly CPI Forecasts Include:

• Q1: 2.90 per cent (vs previous 3.60 per cent)
• Q2: 3.40 per cent (vs previous 3.90 per cent)
• Q3: 3.9 per cent (vs previous 3.80 per cent)
• Q4: 4.4 per cent (vs previous 3.80 per cent

While the central bank noted that inflation expectations are moderating, it remains cautious about potential risks from global shocks and unpredictable monsoon patterns. “We need to remain watchful to unpredictable monsoons and prevailing tariff uncertainties,” the RBI warned.

Rate Changes At A Glance

• Repo rate: 5.50 per cent
  
• Standing Deposit Facility (SDF): 5.25 per cent
  
• Marginal Standing Facility (MSF) and Bank Rate: 5.75 per cent
  
• CRR: 3 per cent (from 4 per cent)