Larger-than-expected surprise: RBI cuts repo rate by 50 bps to 5.5%; EMIs to come down

RBI MPC Meeting: In a big cheer for loan borrowers, RBI governor Sanjay Malhotra announced a more-than-expected 50 basis points repo rate cut. The repo rate now stands at 5.5%, down from 6%. RBI has cumulatively cut the repo rate by 100 basis points since its February policy review. However, RBI governor Sanjay Malhotra made it clear that the central bank is now left with limited room to support growth. Hence the monetary policy stance has been changed from ‘accommodative’ to ‘neutral’.

Repo rate is the rate at which the RBI lends to banks, hence a cut in repo rate is ideally supposed to mean lower borrowing costs for bank customers as well.

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“Amidst heightened volatility in capital flows and exchange rates, coupled with constrained policy space, central banks of emerging market economies have a tougher task to stabilize their economies against global spillovers in this global milieu. The Indian economy presents a picture of strength, stability and opportunity,” Sanjay Malhotra said.


"Price stability preserves purchasing power. It imparts certainty to households as well as to businesses in their savings and investment decisions, and it ensures congenial interest rate and financial conditions, all of which foster consumption, investment and overall activity and therefore growth," he added.

The RBI MPC comes at a time when India's GDP grew at 7.4% in the fourth quarter of FY 2024-25. The government estimates the full fiscal year FY 2024-25 GDP growth at 6.5%.

The global economy is facing significant headwinds from reciprocal tariffs announced by US President Donald Trump. The International Monetary Fund has trimmed the growth forecasts globally, though most experts believe that the Indian economy is relatively insulated from the US tariff shocks. Additionally, India and the US are currently negotiating a mutually beneficial trade deal or bilateral trade agreement. The first phase of the India-US trade deal is expected to be finalised before July 9, when Trump's tariffs kick in.