The Monetary Policy Committee (MPC), chaired by Reserve Bank of India (RBI) Governor Shri Sanjay Malhotra, today announced a 50 basis point cut in the repo rate to 5.5% and a 100 basis point reduction in the Cash Reserve Ratio (CRR), to be rolled out in four tranches starting September 2025.
The policy pivot aims to boost domestic growth, improve systemic liquidity, and support the ongoing economic recovery amidst persistent global uncertainties. This aggressive easing exceeded market expectations, which had largely priced in a modest 25 bps rate cut.
The RBI also shifted its policy stance from ‘Accommodative’ to ‘Neutral’, indicating a more balanced approach between inflation management and growth revival.
The CRR reduction—implemented over four fortnights—is expected to inject ₹2.5 lakh crore of durable liquidity into the banking system, enhancing credit transmission and lowering the cost of funds for financial institutions.
“This policy action is a step towards propelling growth to a higher aspirational trajectory,” said Governor Malhotra during the press briefing, highlighting India’s strong fundamentals across banking, corporate, and fiscal sectors.
Dr. Poonam Tandon, Chief Investment Officer at IndiaFirst Life, called the rate cut “unexpected by the market,” stating, “The MPC therefore front loaded the rate cuts and liquidity measures as well. This means that there will be a long pause and, therefore, no further rate cuts unless growth surprises on the downside. GDP has been maintained at 6.5%. CPI expectations moderated to 3.7% vs 4.0% earlier. Overall, the MPC has tried to accelerate monetary action for faster transmission.”
Mr. Kishore Lodha, Chief Financial Officer, UGRO Capital, also welcomed the policy move, stating, “Today’s MPC policy announcement has been extremely positive. Durable liquidity has reached comfortable levels over the last two months, and the 100 bps CRR cut will inject more than ₹2 lakh crore into the banking system. This measure will further improve systemic liquidity while boosting bank profitability, as CRR balances don’t earn any interest.”
Adding a similar view, Mr. Vinod Francis, General Manager & Chief Financial Officer at South Indian Bank, remarked “The MPC’s decision to go for a deep cut in repo rate by 50 bps and slashing CRR to 3% in tranches will not only support economic growth but also improve the liquidity positions of the banks significantly. These steps will ensure the durability of the nascent resurgence in domestic demand led by private spending. The MPC’s pivot to a neutral stance and dovish economic commentary leaves enough policy space for the central bank to manage the rate corridor.”
Also Read: Flipkart becomes first Indian e-commerce platform to secure RBI NBFC licence
The RBI’s focus on front-loading liquidity support, improving transmission mechanisms, and addressing stress pockets in microfinance signals a comprehensive and calibrated policy shift aimed at long-term macroeconomic stability.
Elets The Banking and Finance Post Magazine has carved out a niche for itself in the crowded market with exclusive & unique content. Get in-depth insights on trend-setting innovations & transformation in the BFSI sector. Best offers for Print + Digital issues! Subscribe here➔ www.eletsonline.com/subscription/
