RBI’s Bold Move: 3rd Straight Repo Rate Cut Shakes Up Lending and Liquidity

Boosting economic growth was the goal, which is why the MPC of the Reserve Bank of India cut the repo rate by 50 basis points during its June 2025 meeting, making the key policy rate 5.50 percent. With this decision, the central bank has reduced rates for the third time, as expected by the markets and because inflation is now stabilising.

It was confirmed by Sanjay Malhotra, RBI Governor, in his policy statement that the cuts to the repo rate predicted by analysts, banks and borrowers would take place. This step by the central bank proves its support for growth, as it has already reduced the policy rate by 100 basis points in just one year.

The judgments made by the MPC are called key announcements

Repo Rate and the Monetary Policy of the Bank

The decision from the MPC was to cut the repo rate by 50 basis points to 5.50 percent and everyone on the committee agreed. The move was due to the positive inflation projection and an attempt to maintain demand in the country. Meanwhile, the RBI decided to shift its policy from easing to neutral, saying that future steps will depend on the latest data reported.

Because the RBI mentioned the upcoming repo rate cut and since inflation expectations improved, most traders in the bond market were already expecting a repo rate decline.

Providing Liquidity by Reducing CRR

Along with actions to improve the market for bank loans, the RBI reduced the Cash Reserve Ratio (CRR) by 100 basis points to 3 percent. It is expected that the move will provide around ₹2.5 lakh crore, so banks can lend out funds with better rates.

Details About Economic Outlook and Prospects

The RBI recently updated its CPI inflation forecast for FY26 by bringing it down to 3.7 percent from the earlier prediction of 4 percent. The fact that inflation is moderate allows policy rates to fall safely.

At the same time, the central bank is keeping its FY26 GDP growth estimate at 6.5 percent and the quarterly figures suggest steady growth: Q1- at 6.5 percent- Q2- at 6.7 percent – Q3- at 6.6 percent- and Q4 – at 6.3 percent.

Economists predicted a repo rate cut after the strong macroeconomic reports and the RBI has now made the cut in a strong front-loaded manner so it benefits credit growth and market liquidity as much as possible.

Governor’s Speech and Important Aspects

He stated in his briefing that the RBI’s moves are aimed at making monetary policy work smoothly. He said that rates in the money markets are already down by 50 basis points and those in credit markets are falling around 40 basis points.

With regards to particular sectors, he also mentioned IndusInd Bank by saying that the problems they have do not affect the financial system and are likely to settle without causing chaos in the market.

At the same time, the Governor said, “We are confident we have overcome inflation,” and noted that any future steps will depend on data factors and worldwide developments. Although interest rates were reduced as expected, a pause is on the horizon due to this development.

Reactions in the Market and What they Mean

For Borrowers

Banks are anticipated to reduce lending rates for retail borrowers because the repo rate has gone down. If home loans, auto loans and business credit are made more affordable, it should increase people’s and companies’ spending and investing.

For people who need loans

The drop in CRR gives banks extra resources to offer additional credit to borrowers. Fixed-income portfolios have already adjusted for the repo rate cut and the introduction of more liquidity should help banks increase their revenues.

For Savers

Fixed deposit interest rates, which have decreased in recent times, may go down more as the policy rate lowers. This situation could make savers search for higher yields in equity and mutual funds.

For the Investors

Shares on Indian stock markets increased after the statement was made. At first, indices were slow, but when it was clear how strong the monetary policy was, they began to rise. Having cutting the repo rate as market participants had hoped was regarded as good for growth and in accordance with global trends.

Forward Guidance

RBI has announced that it will take future decisions about interest rates based on the changing macroeconomic situation.

• Advancement of the monsoon and its effect on food prices
• Big price changes in products sold worldwide
• International updates in monetary policy
• Investing in the country and the growth of domestic credit

Now that the policy stance is neutral, the RBI could decide to stop raising interest rates or to take further action, depending on the data the economy produces.

Repo Rate Cut Expected and Delivered

Following what was expected, the RBI made a strong third repo rate cut. The bank’s decision to drop the policy rate and the CRR by 50 points shows that it strongly believes inflation will fall and that the extra credit will benefit the economy. Even so, with adopting a neutral posture, the RBI has shown that it is pausing its easing moves for consideration.

Analysts, borrowers and markets have received the repo rate cut that they all expected. The results of this latest injection of cash will be seen as the economy continues during the next few months.

 Quick Recap

The cut in the repo rate announced by the RBI confirms its plan to balance inflation and the economy. Considering the stable policy, it is time for the banks, borrowers and businesses to fully use the support offered by these policies.