RBI Surprises Markets with 50 bps Rate Cut to 5.5% Amid Global Uncertainty, Shifts Stance to Neutral

In a move that surprised markets and economists alike, the Reserve Bank of India (RBI) today slashed its benchmark repo rate by 50 basis points to 5.5%, marking its third consecutive cut this year. The Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, cited easing inflation and mounting global economic uncertainty as key factors behind the aggressive rate action, while shifting its policy stance from ‘accommodative’ to ‘neutral’ to support growth without stoking inflation.

 

Jumbo Rate Cut:

The RBI reduced the repo rate by 50 bps to 5.5%, a steeper cut than the 25 bps anticipated by most economists, and also cut the Cash Reserve Ratio (CRR) by 100 bps to enhance banking sector liquidity.

 

Inflation Outlook:

Retail inflation dropped to 3.16% in April, well below the RBI’s 4% target. The central bank revised its FY26 inflation forecast down to 3.7%, citing a benign outlook for both food and core inflation.

 

Growth Concerns:

India’s GDP growth slowed to 6.5% for FY25, its lowest in four years. The RBI noted that global headwinds—including US-China trade tensions and softening global demand—necessitated stronger policy support for domestic growth.

 

Impact on Borrowers and Markets:

Lending rates are expected to fall, with banks likely to pass on the benefit of lower rates to home and business loan borrowers. A 50 bps cut could reduce EMIs on a ₹1 crore home loan by about ₹3,000 per month. Realty and banking stocks rallied on the news.

 

Policy Rationale:

Governor Malhotra emphasized the need to “maintain growth momentum and financial stability” amid global spillovers and technological disruptions. The RBI sees the early onset of the monsoon as positive for inflation but remains vigilant about external risks.

 

Forward Guidance:

The RBI’s shift to a neutral stance suggests a pause in further easing, with future actions to be data-dependent as the global and domestic outlook evolves.

 

Insight

The RBI’s unexpected 50 bps rate cut underscores its commitment to supporting growth as global uncertainties mount and inflation remains subdued. With lending rates set to fall and liquidity conditions improving, the move is expected to stimulate credit demand and consumption, providing a timely boost to the economy.

 

Source: Economic Times, CNBC-TV18, Business Standard, Upstox, Financial Express, News18, Business Today, Reuters, Moneycontrol