While the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) decided to take a bold 50 basis points (bps) cut in repo rate, one of the biggest announcements that came out from the June meeting was a reverse movement to a ‘neutral’ stance. RBI Governor Sanjay Malhotra on Friday, during his post MPC meeting speech, said that the central bank has decided to change the stance from ‘accommodative’ to ‘neutral’.
This comes as an interesting development since the RBI had, only in the previous meeting (April 2025), announced the shift in its monetary policy stance from ‘neutral’ to ‘accommodative’. This change was accompanied by a 25 bps reduction in the repo rate which had brought it down to 6.00 per cent.
Why a shift back to ‘neutral’ stance?
During today’s speech, Governor Malhotra said, “After having reduced the policy repo rate by 100 bps in quick succession since February 2025, under the current circumstances, monetary policy is left with very limited space to support growth.” And therefore, the central bank shifted its stance back to ‘neutral’.
“From here onwards, the MPC will be carefully assessing the incoming data and the evolving outlook to chart out the future course of monetary policy in order to strike the right growth-inflation balance. The fast-changing global economic situation too necessitates continuous monitoring and assessment of the evolving macroeconomic outlook,” he said.
A 50 bps cut
The RBI announced a cut of 50 bps in its benchmark interest (repo) rate, marking the third straight rate cut by the central bank, following a 25 bps cut each in February and April. With this, the repo rate now stands at 5.5 per cent from 6 per cent earlier.
The central bank acknowledged that inflation has eased sharply over the past six months, falling from above the tolerance band in October 2024 to below the 4 per cent target, with broad-based moderation. The outlook now suggests inflation may slightly undershoot the target this year. Food and core inflation are also expected to stay low, supported by falling global commodity prices. As a result, the inflation forecast for 2025 has been revised down to 3.7 per cent from 4 per cent.
However, growth remained below expectations amid global challenges. To boost domestic demand and investment, Sanjay Malhotra said, the RBI has decided to frontload rate cuts. The MPC voted to cut the repo rate by 50 bps to 5.50 per cent, with one member preferring a smaller 25 bps cut.
CRR cut by 100 bps
In addition, the central bank has also cut its Cash Reserve Ratio (CRR) by 100 basis points. The cut in CRR will release up to Rs 2.5 lakh crore liquidity in the system and reduce the cost of funding for banks, Sanjay Malhotra said in his address.