The Reserve Bank of India (RBI) Governor Sanjay Malhotra announced on June 6, 2025, that the scope for additional policy rate cuts is highly constrained due to current economic conditions. This statement follows the RBI’s Monetary Policy Committee (MPC) decision to reduce the repo rate by 50 basis points (bps) to 5.5%, marking the third consecutive rate cut in 2025 and bringing the total reduction to 100 bps since February.
Key Highlights from the RBI MPC Meeting
Repo Rate Reduction
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The repo rate, the rate at which banks borrow from the RBI, was cut by 50 bps to 5.5%, the lowest in three years since August 5, 2022, when it stood at 5.40%.
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This follows a 25 bps cut in February and another in April, totaling a 100 bps reduction in 2025.
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Governor Malhotra emphasized that future policy actions will be data-driven, stating, “We will continue to monitor the incoming data, and we will move primarily what the data suggests to us.”
Economic Projections
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Growth: The RBI projects a robust 6.5% economic growth for the current fiscal year.
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Inflation: Inflation is forecasted at 3.7% for FY25, down from the earlier 4% estimate, with projections above 4% for FY26.
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Malhotra noted that core inflation remains benign, supported by easing international commodity prices, leading to the lowest average retail inflation projection in recent years.
Impact on Growth
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The recent rate cut is expected to bolster economic growth, with visible impacts likely in the second half of FY26.
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Malhotra highlighted that rate transmission is anticipated to be faster than historical trends, enhancing the effectiveness of the policy change.
Cash Reserve Ratio (CRR) Cut
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The RBI slashed the CRR by 100 bps, unlocking ₹2.5 lakh crore in liquidity for the banking system by December 2025.
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This move is aimed at boosting credit flow to productive sectors, further supporting economic growth.
Inflation Outlook
Governor Malhotra expressed confidence in the RBI’s efforts to control inflation, stating, “It can be assumed that RBI has won the fight against price rise.” However, the central bank remains cautious of:
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Weather-related uncertainties.
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Evolving tariff-related concerns impacting global commodity prices.
Limited Room for Further Rate Cuts
Malhotra underscored the constrained monetary policy space, citing:
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Stable growth projections at 6.5%.
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Inflation expected to rise above 4% in FY26.
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The cumulative 100 bps rate cut already implemented in 2025.
He reiterated that any future decisions will hinge on incoming economic data, ensuring a cautious and evidence-based approach.
Why This Matters
The RBI’s actions reflect a delicate balance between fostering economic growth and maintaining price stability. The 50 bps repo rate cut and the significant CRR reduction signal proactive measures to stimulate lending and economic activity. However, the governor’s remarks indicate a cautious stance on further easing, given the inflation trajectory and global uncertainties.
For businesses and consumers, the lower repo rate could translate to reduced borrowing costs, potentially spurring investment and consumption. The increased liquidity from the CRR cut is also likely to enhance credit availability, particularly for productive sectors.
Conclusion
The RBI’s latest policy decisions underscore its commitment to supporting India’s economic growth while keeping inflation in check. With a projected GDP growth of 6.5% and inflation at a manageable 3.7% for FY25, the central bank is navigating a complex economic landscape. However, Governor Malhotra’s remarks suggest that further rate cuts may be limited unless new data indicates otherwise. Stakeholders will closely monitor incoming economic indicators to gauge the RBI’s next moves.
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