RBI Governor: Very limited space for further policy rate cuts given current circumstances

The RBI governor on Friday announced that the MPC, in its latest rate-setting meeting, decided to cut the repo rate by 50 basis points (bps) to 5.5%.

This was the third straight rate cut by the apex bank, and after today's reduction, the repo rate in India is the lowest in three years.

The repo rate – the rate at which banks borrow funds from the RBI – had last stood at 5.40% on August 5, 2022.

Addressing media after unveiling a bi-monthly monetary policy, Malhotra said future monetary policy actions will depend upon incoming data.

"There is now very limited space for the monetary policy, actually, given the current circumstances...growth (projection) is about 6.5 per cent, inflation, we are projecting at 3.7 per cent for this year and above 4 per cent for the next year...if these were to play out, there is very limited space," he said.

"We will continue to monitor the incoming data, and we will move primarily what the data suggests to us," he said.

In all, RBI has now cut interest rates by a total of 100 basis points in 2025, starting with a quarter-point reduction in February – the first cut since May 2020 – and another similar-sized cut in April.

Stressing that the rate cut will have a positive effect on growth, the governor said the impact will be seen only in the later half of FY26.

Governor Malhotra also expects rate transmission to be faster compared to past trends.

On inflation, Malhotra said it can be assumed that RBI has won the fight against price rise.

The RBI has also slashed the inflation forecast for the current fiscal year to 3.7% from the earlier estimate of 4% in April, as it expects core inflation to remain benign with the easing of international commodity prices.

The sub-4% average retail inflation projection is the lowest in recent years.

The RBI, which cut the key policy rate by 50 basis points to 5.5%, said that despite these favourable prognoses, it would remain watchful of weather-related uncertainties and still-evolving tariff-related concerns with their attendant impact on global commodity prices.

As regards the CRR cut, he said it will certainly boost credit flow.

RBI decided to slash the cash reserve ratio (CRR) by a huge 100 bps, which will unlock ₹2.5 lakh crore liquidity by December for the banking system for lending to productive sectors of the economy.

With the reduction in four equal tranches ending November 29, 2025, the CRR would come down to 3%. This means that commercial banks would have to maintain a lower level of 3% in cash, with the RBI allowing them to have higher funds for lending.

The RBI statement said that the MPC voted to reduce the policy repo rate by 50 bps to 5.50%. Dr Nagesh Kumar, Prof. Ram Singh, Dr Rajiv Ranjan, Dr Poonam Gupta and Shri Sanjay Malhotra voted to decrease the policy repo rate by 50 bps. However, Shri Saugata Bhattacharya voted for a 25 bps cut in the repo rate.

The minutes of the MPC’s June 2025 meeting will be published on June 20, 2025.

The next meeting of the MPC is scheduled from August 4 to 6, 2025.