RBI’s rate cut underscores a clear pivot towards supporting growth, say experts

The Reserve Bank of India (RBI) on Friday, June 6, announced dual measures aimed at boosting economic growth and easing banking system liquidity by announcing a larger-than-expected repo rate cut and a surprise cut in cash reserve ratio.

The RBI’s monetary policy committee decided to cut the repo rate by 50 basis points (bps) against an expectation of a 25 bps cut. In a move to ease banking system liquidity, the RBI also announced a CRR cut by 100 basis points.

The RBI’s decision to reduce the repo rate by 50 basis points to 5.50% and CRR by 100 basis points in four tranches indicates a strong and timely policy shift that aligns with balancing growth with price stability. Besides this, the revision in CPI inflation to 3.7% for FY26 also shows RBI’s confidence in inflation being aligned with its 4% target.

The decision in the CRR cut, which is expected to release ₹2.5 lakh crore in primary liquidity, will ease credit conditions in the banking system. This overall policy reflects a well-calibrated and thoughtful approach, with the GDP projected at 6.5% in FY26 and a steady quarterly trend.

The RBI’s bold 50 basis point cut in the policy repo rate, bringing it down to 5.5%, has surprised markets and underscores a clear pivot towards supporting growth amid subdued economic momentum and easing inflation.

With a cumulative 100 bps cut over just four months, the central bank has frontloaded its easing cycle. However, by reverting its stance to neutral, the RBI signals that it may now pause to assess the full transmission of these cuts before considering further action.

The RBI finally goes for a ‘Whatever it takes’ moment for India with the confidence of keeping inflation within target and the aspiration of growing higher towards Viksit Bharat. The RBI’s MPC has front-loaded the rate cut with a reduction in the repo rate by 50 bps, making the repo at 5.5%.

RBI has also decided to cut the cash reserve ratio (CRR) requirement for banks by 1%, reducing it to 3% in four tranches starting from 6th September 25. This will increase the banking system liquidity by ₹2.5 lakh crores and ensure sufficient liquidity in the system in the near future also.

However, the MPC changed the stance to neutral. The RBI has reduced its projection for CPI inflation to 3.7% (from 4% earlier) and has kept the Indian GDP growth at 6.5% for FY26.

"With the stance changed to neutral and the RBI governor's statement of frontloading the rate cut in this policy, we expect further rate action to be data dependent; however, we believe there is scope for more 25 bps rate cuts in this cycle, though the timing of the cut is uncertain. Headwinds continue to be from global variables with uncertainty of US tariffs and tensed geopolitical situations in parts of the world," said Bisen.

The Reserve Bank of India delivered a surprise 50 bps rate cut today, taking the policy repo rate to 5.5% from 6.0%. The surprise was partly offset by the change in policy stance from ‘accommodative’ to ‘neutral’, signalling a more data-dependent approach ahead, as opposed to continued assurance of further policy easing.

Additionally, the central bank reduced the CRR by a cumulative 100 bps in four equal tranches, adding almost ₹2.5 lakh crore to banking system liquidity.

A larger-than-expected move on the repo rate, offset by the hardening of the policy stance, may be seen as a front-loading of future policy action. CRR, on the other hand, is a surprise for the market. RBI has also moved its full-year inflation forecast lower to 3.7% from 4.0% while affirming its confidence in a robust growth trajectory.