RBI Governor Sanjay Malhotra Announces Repo Rate Cut By 50 bps, Signals Flexible Future Decisions

In a move aimed at preserving economic momentum amid global volatility, the Reserve Bank of India (RBI) has slashed the repo rate by a steep 50 basis points, bringing it down to 5.50%. This cut, sharper than most market expectations, was accompanied by a shift in the central bank’s policy stance from ‘withdrawal of accommodation’ to a more flexible ‘neutral’. Announcing the decision, RBI Governor Sanjay Malhotra said the move is a response to “a more challenging global growth-inflation trade-off and a benign domestic inflation outlook.” The central bank, he stressed, remains committed to anchoring inflation within the 4% target while doing what it takes to sustain India’s economic momentum.

RBI Projects Average Inflation Of 3.7%

The Monetary Policy Committee’s (MPC) decision reflects growing confidence in India’s inflation trajectory. Food inflation has remained soft, while core inflation stripped of volatile food and fuel components is subdued. The RBI now projects inflation at an average of 3.7% for FY25, revising it downward.

Supporting this rate cut is a significant liquidity infusion the RBI has announced a 100 bps reduction in the Cash Reserve Ratio (CRR), from 4% to 3%, to be implemented in four tranches starting September. This step will unlock an estimated ₹2.5 lakh crore into the banking system by November 2025. Alongside, the Standing Deposit Facility (SDF) and Marginal Standing Facility (MSF) rates were adjusted to 5.25% and 5.75% respectively, aligning with the repo cut. While the rate cut provides short-term relief, the RBI continues to tread cautiously. The GDP growth forecast for FY26 remains at 6.5%, with risks evenly balanced. Governor Malhotra cited early monsoon arrival as a domestic positive but warned of persistent external risks from declining global trade and investment flows to spillover effects from geopolitical tensions and rapid AI-driven disruptions. “Financial stability remains a central challenge in today’s interconnected, tech-heavy world,” Malhotra observed, adding that central banks must evolve their toolkits for a future shaped by both innovation and unpredictability. With the shift to a neutral stance, the RBI has clearly opened the door for more calibrated decisions in the future. Analysts say this flexibility gives the central bank room to respond swiftly to changing data — be it from global markets, inflationary spikes, or sudden capital outflows. Must Read: The Tallest Bridge In The World! Chenab Bridge In J&K That Can Withstand Earthquakes