NEW DELHI:  In a decisive move to bolster economic activity, the Reserve Bank of India (RBI) has reduced its key repo rate by 50 basis points, bringing it down to 5.5%. This marks the third consecutive rate cut in 2025, totaling a 100 basis point reduction since February. The decision was unanimously approved by the RBI's Monetary Policy Committee (MPC) during its meeting held from June 4 to 6, 2025.

Governor Sanjay Malhotra emphasized that this "frontloading" of rate cuts is aimed at providing immediate support to the economy amid global uncertainties and to stimulate domestic demand. He noted that the RBI's monetary policy stance has shifted from "accommodative" to "neutral," indicating a more cautious approach moving forward.

Accompanying the rate cut, the RBI also announced a 100 basis point reduction in the Cash Reserve Ratio (CRR) to 3%, which is expected to inject approximately ?2.5 lakh crore into the banking system, thereby enhancing liquidity and encouraging lending.

The RBI's decision is expected to lead to lower Equated Monthly Installments (EMIs) for borrowers, particularly benefiting homebuyers and consumers seeking affordable credit. However, fixed deposit investors may see a decline in returns as banks adjust their interest rates in response to the lower repo rate.

The central bank has maintained its GDP growth forecast for the fiscal year at 6.5% and revised its inflation projection downward to 3.7%, citing easing food prices and stable domestic conditions.

While the rate cut is anticipated to provide a boost to sectors such as real estate, automobiles, and consumer goods, the RBI has indicated that future policy actions will depend on evolving economic data and global developments.

Economists and market analysts view this move as a proactive step to sustain economic momentum and address challenges posed by external factors, including trade tensions and global economic volatility.