RBI Monetary Policy Highlights: RBI cuts repo rate by 50 bps, CRR by 100 bps; Guv says ‘We have won war against inflation’

Gaura Sengupta, Chief Economist at IDFC FIRST Bank, said, “The front loading of the rate cut action plus CRR cut indicates focus is on enhancing the transmission of monetary policy . The neutral stance indicates that the bar for further rate cut is higher but isn’t completely off the table. In the next few policies we expect rbi to remain on pause. The CRR cut, which will infuse liquidity in H2FY26 , will ensure system liquidity remains above the 1%of NDTL till March 2026. The need for further OMO purchases is much lower now.

John Muthoot, Chairman & Managing Director of Muthoot FinCorp Ltd, said, “The reduction in the repo rate and CRR will not only ease the cost of funds but also unlock greater liquidity across the system. At Muthoot FinCorp Ltd, this enables us to extend more affordable and accessible credit solutions to underserved households, first-time borrowers, and micro-entrepreneurs — the real drivers of India’s informal economy. These forward-looking measures align closely with our purpose of transforming the life of the common man by improving their financial well-being. We are confident that such policy support will accelerate demand, enhance financial inclusion, and drive sustainable, broad-based growth across sectors.”

Kaustubh Gupta, Co-Head Fixed Income, Aditya Birla Sun Life AMC Ltd, said, “With the RBI’s jumbo 50-bps repo rate cut and 100-bps CRR cut, policy easing has been front loaded. We view the policy as growth supportive and stimulative along with an indication of a clear resolve by policy makers to push for growth in an uncertain global environment. The governor also said that while growth is decent, aspirational growth is in the 7-8% range.”

Debopam Chaudhari, Chief Economist, Piramal Group, said, “This landmark policy marks a decisive push to revive domestic growth and could be remembered as a historic pivot in the RBI’s journey—one that catalyzed India’s next phase of economic expansion. A bold 50 bps repo rate cut, alongside a 100 bps reduction in the CRR, sends a strong signal of commitment to supporting growth. Together, these measures are likely sufficient to keep the Indian lending ecosystem well-lubricated, even amid persistent global uncertainties.

This may raise some concerns about the narrowing gap between US and Indian yields. However, India’s strong growth prospects and political stability will remain compelling factors for foreign capital seeking diversification within emerging markets.”

Indranil Pan, Chief Economist, Yes Bank, said, “There were surprises all the way in this policy – a frontloading of rate cuts with a 50 bps cut in this policy, a change of stance back to “neutral” from “accommodative”, and a CRR cut of 100 bps starting fortnight of September 6th in equal doses of 25 bps each.

Coming back to the inflation trajectory, clearly inflation has been undershooting the target level of 4% and inflation expectations as has been set out by the RBI points to a 3.2% average for Q1-Q2 of FY26, while moving higher in H2FY26 to an average of 4.2%. This sharp difference in inflation between the two halves provided RBI the room to afford the frontloading of the rate cuts.

However, the change of stance to “neutral” implied that most of the firepower that the RBI had has been already expended and space for further monetary policy becomes limited, with the future course of policy to be data driven.”

Siraj Saiyed, Director, Arete Group, said, “Commercial and industrial real estate will benefit from the RBI's 50 basis point rate cut and CRR reduction, which indicate a firm push for expansion and liquidity infusion. Project viability will be increased, and capital deployment across asset classes will be accelerated, by reduced borrowing costs and better credit availability. This policy change will further improve investor sentiment and occupier demand in Gujarat, where the development of industrial corridors and the expansion of logistics are already gaining momentum. This is a chance to expedite the development of infrastructure that will satisfy the changing demands of manufacturing and warehousing while yielding robust, risk-adjusted returns.”

Sachin Sachdeva, Vice President, Sector Head - Financial Sector Ratings, ICRA Ltd, said, “With 100 bps cut in CRR to be implemented in phases starting September 2025, banks will see a benefit of 3-4 bps on the interest margins for FY2026. The steep cut of 50 bps in Repo rate is expected to sharply impact the net interest margins (NIMs) of the banks and Q2FY2025 is expected to be the weakest. Thereafter, the pressure on NIMs is expected to decline with the benefit starting to flow in from CRR cut and extent of cut taken by banks on their saving rate deposits while the term deposit rates will reprice downward with a lag."

The share price of IndusInd Bank jumped by 3.7 per cent after the RBI governor’s statement on the Bank, to a high of Rs 833.40 on the National Stock Exchange.

RBI Governor Sanjay Malhotra said, “Final regulations on gold loans will be out today or latest by Monday. LTV for gold loans below Rs 2.5 lakh to be revised to 85 per cent from 75 per cent. No change in foreign holding cap in banks in near term.”

Sanjay Malhotra said, “Inflation under control. We have won the war against inflation but there is scope to push the GDP rate further.” He further added that there is an urgent need to bring about a certain amount of stability and certainty in the country, economy and markets. This was the key purpose to front-load the rate cut.

“We could have announced CRR later but did it today so banks are assured of liquidity. The more certainty we have, the stronger our macros will be,” the RBI governor said.

In the post-policy presser, RBI Governor Sanjay Malhotra said, “Liquidity is abundant, haven't given a thought to any targeted level of call rate. Will continue to monitor incoming data.” He further said that the MPC has limited scope to boost growth which is why the central bank changed stance to neutral.

To conclude, RBI Governor Sanjay Malhotra said, “...while price stability is a necessary condition, it is not sufficient to ensure growth. A supportive policy environment is vital. This is even more important during periods of high uncertainties such as the current times. At the Reserve Bank, therefore, while price stability remains the focus of monetary policy, we are not oblivious to putting in place complementary monetary and credit policies and regulations that support growth and prosperity.”

RBI Governor Sanjay Malhotra said, “The system-level financial parameters of Scheduled Commercial Banks (SCBs) continue to be robust. The asset quality parameters, liquidity buffers and profitability parameters have shown further improvement. Credit Deposit ratio for the banking system at the end of December 2024 was at 81.84 per cent, broadly similar to a year ago. Similarly, the system-level parameters of NBFCs too are sound with comfortable capital position and improved GNPA ratios.”

A total amount of Rs 9.5 lakh crore of durable liquidity was injected into the banking system since January. “As a result, after remaining in deficit since mid-December, liquidity conditions transitioned to surplus at the end of March. This is also evident from the tepid response to daily VRR auctions and high SDF balances – the average daily balance during April-May amounted to Rs 2.0 lakh crore,” the RBI governor said.

On the financing side in 2024-25, RBI Governor Sanjay Malhotra said that foreign portfolio investment (FPI) to India dropped sharply to $1.7 billion, as foreign portfolio investors booked profits in equities. Net foreign direct investment (FDI) too moderated. “It is germane to point out that this moderation is on account of a rise in repatriation and net outward FDI while gross FDI actually increased by 14 per cent. Rise in repatriation is a sign of a mature market where foreign investors can enter and exit smoothly, while high gross FDI indicates that India continues to remain an attractive investment destination,” Governor Malhotra said.