"The RBI's announcement will not only push banks’ external benchmark linked lending rates lower, but will also lower MCLR and deposit rates, thereby, bringing in greater pace and intensity to transmission"
FinTech BizNews Service
Mumbai, June 6, 2025: The Monetary Policy Committee (MPC) held its 55th meeting from June 4 to 6, 2025 under the chairmanship of Shri Sanjay Malhotra, Governor, Reserve Bank of India. After assessing the current and evolving macroeconomic situation, the MPC voted to reduce the policy repo rate by 50 basis points (bps) to 5.50 per cent with immediate effect.
Let us know views of the senior Economists and Economic Advisors on the MPC decisions:
Siddhartha Sanyal, Chief Economist & Head Research, Bandhan Bank
Today’s monetary policy committee (MPC) meeting sprang several major surprises. The 50 basis point repo rate cut came in as a surprise against consensus and our expectation of a 25bp rate cut. However, given the change in stance of monetary policy from “accommodative” to “neutral” and the RBI’s communication of very little space for more support from monetary policy, our expectation of a terminal repo rate of 5.50% in the current cycle remains largely unchanged.
The larger than expected rate cut, coupled with announcement of a large CRR cut around the beginning of the busy season, brings in more focus on transmission of the monetary policy actions into the real economy. Today’s announcement will not only push banks’ external benchmark linked lending rates lower, but will also lower MCLR and deposit rates, thereby, bringing in greater pace and intensity to transmission.
Gaura Sengupta - Chief Economist at IDFC FIRST Bank:
The front loading of the rate cut action plus crr cut indicates focus is on enhancing the transmission of monetary policy . The neutral stance indicates that the bar for further rate cut is higher but isn’t completely off the table . In the next few policies we expect rbi to remain on pause.
The CRR cut which will infuse liquidity in h2fy26 , will ensure system liquidity remains above the 1%of ndtl till March 2026
The need for further OMO purchases is much lower now.
Ranen Banerjee, Partner and Leader, Economic Advisory, PwC India:
“The MPC has delivered an unexpected outsized policy rate cut of 50bps against a consensus expectation of a 25bps cut. This is accompanied by a 100bps staggered cut in CRR and a change in policy stance to neutral. The decision is likely owing to the GDP prints for Q4 of FY25 reflecting weakness in manufacturing and consumption, as well as the adverse impacts of global trade and conflict headwinds. The policy rate easing, combined with the liquidity increase for banks when system liquidity is already comfortable, is likely to add a second engine to the consumption growth flight that is anticipated to be already in flight from the income tax cuts taking effect in FY26. This is significantly positive for urban consumption, which printed weak in past quarters, and will also likely add a fillip to real estate, discretionary purchases, and private capex.”
DK Srivastava, Chief Policy Advisor, EY India
“India’s GDP growth has performed admirably well in the post-COVID years. It has averaged 7.8% over the period 2022-23 to 2024-25. This is in spite of a challenging global economic environment where global GDP growth has been limited to 3.5%. Over this period, the contribution of net exports to India’s GDP growth has been 0.2% points, (-)2.8% points, and 2.3% points, respectively. Clearly, India’s growth has been largely driven by domestic demand. Within domestic demand, it is mainly the government's capital expenditure which has been driving India’s growth. A more balanced profile of growth drivers would call for a tangible pickup in private investment demand and external demand. While much can not be said about the way external demand might evolve, domestic private investment demand can be stimulated. In this context, monetary policy is of considerable importance since it affects cost of capital.
The RBI, in its monetary policy review held on 06 June 2025, lowered the policy rate by 50 basis points to 5.5% with the objective of supporting growth. It projected real GDP growth at 6.5% in 2025-26 driven by private consumption and fixed capital formation. The RBI, however, changed its policy stance to neutral from accommodative. The frontloading of policy rate reduction is welcome. However, given the likely global growth slowdown and trade related uncertainties, the RBI may carry forward the momentum of the present interest rate reduction cycle at least until the policy rate reaches 5%. Conditions are ripe for maintaining this downward thrust since CPI inflation remains below the RBI’s target of 4%. In fact, the RBI has revised downwards its CPI inflation forecast for 2025-26 to 3.7% from 4.0% projected in April 2025. As private investment keeps improving, the ongoing rate reduction cycle could incentivize private investment and take India’s potential growth closer to 7% in the next few years.”
