Governor Malhotra's RBI Makes Bold Growth Move on Repo, CRR

RBI Delivers Major Rate Cut to Support Growth but Signals Caution with 'Neutral' Stance

In a significant policy decision on Friday, June 6th, the Reserve Bank of India’s Monetary Policy Committee (MPC) delivered its boldest pro-growth stimulus under Governor Sanjay Malhotra's leadership, yet simultaneously signaled a potential end to its aggressive easing cycle. The MPC announced a substantial 50-basis-point reduction in the repo rate to 5.5 percent and a 100-basis-point cut in the Cash Reserve Ratio (CRR) to 3 percent. However, it strategically shifted its monetary policy stance from "accommodative" to "neutral," indicating a more cautious, data-dependent approach moving forward.

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Robust Stimulus amidst Economic Slowdown

The decision to slash rates marks the third consecutive reduction since February, bringing the total cut to 100 basis points. The CRR reduction is set to release approximately ₹2.5 lakh crore of liquidity into the banking system, a clear measure aimed at spurring credit growth and supporting an economy facing a notable slowdown. India's GDP growth for FY25 is estimated at 6.5%, a decline from the 9.2% recorded in FY24. Other indicators, such as the Index of Industrial Production (IIP) falling to an eight-month low in April 2025 and a softening Manufacturing PMI, underscore the need for this economic support.

Favorable Inflation Provides Room for Action

The MPC's decisive action has been facilitated by a benign inflation outlook. Retail inflation, measured by the Consumer Price Index (CPI), eased to a multi-year low of 3.16 percent in April, remaining below the RBI's 4 percent target for the third consecutive month. This trend, driven by softer food prices and a strong rabi harvest, prompted the RBI to revise its CPI inflation forecast for FY25 downward from 4.0 percent to 3.7 percent. Governor Malhotra expressed confidence in aligning inflation with the target, though he cautioned that achieving the "last mile of disinflation" remains challenging.

A Cautious Outlook despite Bold Moves

The shift to a neutral policy stance, despite the significant rate cuts, serves as a clear signal of the central bank's underlying caution. The RBI remains vigilant about potential upside risks to inflation. These include domestic factors like erratic weather patterns affecting food prices and rising input costs, as well as external pressures from global trade frictions, protracted geopolitical tensions, and volatile crude oil markets. By front-loading this stimulus, the RBI aims to bolster the economy now, while the change in stance provides the flexibility to pause and assess the impact of these cuts without committing to further easing.

The Reserve Bank of India's latest monetary policy represents a carefully calibrated strategy. It has deployed significant tools to support economic growth at a time of moderating inflation. However, the accompanying shift to a neutral stance clearly communicates that the period of aggressive rate reductions may be concluding. The central bank now appears poised to enter a more watchful phase, ready to respond to an unpredictable global and domestic landscape, balancing its immediate pro-growth actions with prudent foresight.