The Reserve Bank of India (RBI) Friday cut the repo rate by a hefty 50 basis points (bps) to 5.50% in its latest monetary policy review, marking the third consecutive reduction since February 2025. The Monetary Policy Committee (MPC), which met from June 4 to 6, voted unanimously in favour of the cut, signalling continued support for growth amid moderating inflation.

RBI Governor Sanjay Malhotra, in the MPC meeting today, said, "The 55th meeting of the Monetary Policy Committee (MPC) was held in the backdrop of an early and promising start of the monsoon season, which is of vital significance for the Indian economy."

To further ensure durable liquidity in the system, the central bank also reduced the Cash Reserve Ratio (CRR) by 100 basis points, from 4% to 3% of net demand and time liabilities (NDTL).

"The Reserve Bank remains committed to provide sufficient liquidity to the banking system. To further provide durable liquidity, it has been decided to reduce the cash reserve ratio (CRR) by 100 basis points (bps) to 3% of net demand and time liabilities (NDTL) in a staggered manner during the course of the year," said Malhotra.

Fortune India had reported yesterday that top economists had called for a rate cut of 50 bps given the fact that inflation was moderating.

Anuj Puri, Chairman – ANAROCK Group, said, "The reduction in the Cash Reserve Ratio (CRR) will help boost liquidity in the banking system, which means that banks have more funds to lend. Developers will be able to access more capital for their projects, and this can positively impact project completion timelines. It also gives banks the option to reduce home loan interest rates, which will have again positively impact sentiment in the affordable and mid-income segments."

The early monsoon, with a forecast of more-than-normal rainfall, could have also been a factor that may have prompted the governor to focus on growth, especially since inflation is benign now and seen moderating further.

Jyoti Prakash Gadia- Managing Director at Resurgent India, said, "The front-loading of the rate cut is however accompanied with a change in stance from 'accomodative ' to neutral which implies that the further rate cuts may not come sooner and RBI will watch the future scenario of the growth inflation matrix This is considered a wise step to give the chance for early credit and investment growth to take the economy to a new trajectory before we lose the opportunity due to future likely uncertainty."

Mohit Malhotra, Founder & CEO of residential real estate platform NeoLiv, says the RBI’s decision to cut the repo rate by 50 bps to 5.5% is a welcome move for the real estate sector. "Lower interest rates enhance affordability, making the dream of home ownership more attainable. This rate cut is likely to boost buyer sentiment and drive housing demand. Additionally, it provides an encouraging signal for new-age fund and development companies to invest further, strengthening the sector and supporting broader economic growth,” he says.

Under the flexible inflation targeting framework, RBI's Inflation outlook for the year is being revised downwards to 3.7% from 4%. The recent data offers comfort, suggesting price stability is firmly within reach. Economists now believe inflation could remain within the RBI’s comfort zone for the next year, giving the central bank room to shift its focus more firmly towards supporting economic growth.

"The uncertainty around the global economic outlook has somewhat ebbed since the MPC met in April in the wake of [a] temporary tariff reprieve and optimism around trade negotiations. However, it is still high to weaken sentiments and lower global growth prospects. Accordingly, global growth and trade projections have been revised downwards by multilateral agencies. Moreover, the last mile of disinflation is turning out to be more protracted. As growth-inflation trade-off is becoming more challenging, monetary authorities are charting out a more cautious and carefully calibrated policy trajectory," said the Governor.

With global uncertainties and domestic demand still recovering, today’s rate cut is seen as a proactive step to maintain momentum. The central bank, however, signals a cautious stance going forward, keeping a close eye on global developments and potential risks to inflation expectations.