RBI Cuts Repo Rate Again to Boost Economy; Home and Auto Loans to Get Cheaper
In a bid to strengthen the Indian economy amid growing concerns over retaliatory tariffs by the United States, the Reserve Bank of India (RBI) on Wednesday reduced the benchmark repo rate by 0.25 percent for the second consecutive time, bringing it down to 6 percent. The central bank also shifted its monetary policy stance from ‘neutral’ to ‘accommodative’, hinting at the possibility of further rate cuts in the near future.
As per agency report, RBI Governor Sanjay Malhotra, while announcing the first bi-monthly monetary policy review for the financial year 2025-26, said the decision was taken unanimously by the six-member Monetary Policy Committee (MPC). The committee comprises three RBI officials and three external members.
This reduction is expected to lower interest rates on loans linked to external benchmarks such as the repo rate, making housing, automobile, and personal loans more affordable for consumers. If commercial banks pass on the full benefit of the rate cut to borrowers, EMIs on various loans could reduce by around 0.25 percent.
This latest policy move follows a similar 0.25 percent cut in February 2025, the first adjustment in repo rates in over two and a half years, since May 2020. It brings the borrowing cost to its lowest level since November 2022, facilitated by easing inflation and a decline in crude oil prices.
The central bank also revised its GDP growth forecast for 2025-26 from 6.7 percent to 6.5 percent, acknowledging the economic uncertainty sparked by the United States’ imposition of a 26 percent tariff on Indian exports. Some economists estimate this could reduce India’s GDP growth by 0.2 to 0.4 percent in the current fiscal.
RBI’s inflation outlook was also adjusted, bringing the estimate down to 4 percent from the earlier 4.2 percent, aligning closely with its medium-term target of maintaining retail inflation within a two percent band on either side of the 4 percent mark.
Governor Malhotra emphasized that while food inflation has eased significantly, the central bank remains vigilant about risks stemming from global uncertainties and potential climate-related disruptions. He noted that recent global economic developments, including weakening of the US dollar, falling bond yields, declining stock markets, and the lowest oil prices in over three years, have contributed to a volatile environment.
Malhotra, who assumed office in December, has demonstrated a more growth-oriented approach than his predecessor, Shaktikanta Das. Alongside the rate cuts, the RBI has injected over $80 billion of liquidity into the banking system over the past two months, indicating a clear focus on supporting domestic economic momentum.
According to analysts, the accommodative policy stance signals that the RBI is prepared to maintain or further reduce interest rates depending on evolving economic conditions. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, suggested that there is room for another 0.75 to 1.0 percent cut this year, while Radhika Rao of DBS Bank expects a further 0.50 percent reduction.
Commenting on the broader economic impact, Malhotra acknowledged that retaliatory tariffs and trade disruptions could negatively affect global and domestic growth. Although it is challenging to quantify the full impact of tariffs and other external variables, the central bank remains focused on ensuring macroeconomic stability and steady growth.
In addition to rate cuts, the RBI announced several other measures. The National Payments Corporation of India (NPCI) has been allowed to revise UPI transaction limits for consumer-to-merchant payments based on market requirements. The central bank also proposed a review of lending norms against gold jewelry to enhance financial access.
The next meeting of the Monetary Policy Committee is scheduled for June 4 to 6, during which the RBI will reassess the economic outlook and determine future monetary actions.
