The Reserve Bank of India (RBI) has recently executed a series of policy moves that can be likened to a thrilling cricket match, marked by unexpected twists and turns. In its latest Monetary Policy Committee (MPC) meeting on June 6, 2025, the RBI delivered a surprise "yorker" by reducing the repo rate by a substantial 50 basis points to 5.50%. This bold move, the third consecutive rate cut since February 2025, reflects the central bank's intent to aggressively stimulate economic growth amid a benign inflation outlook.
Complementing this aggressive rate cut, the RBI bowled a "shocking bouncer" by announcing a 100-basis-point reduction in the Cash Reserve Ratio (CRR), bringing it down from 4% to 3% in a phased manner starting September 6, 2025. This measure is expected to inject approximately ₹2.5 lakh crore into the banking system, further enhancing liquidity and facilitating credit growth. The combined effect of these measures is designed to lower borrowing costs, encourage investment, and boost consumption, providing a significant impetus to economic activity.
However, the RBI's policy stance also contains a strategic element of risk management, akin to a "last ball sixer." While the central bank has frontloaded policy easing measures, it has also signaled a shift from an "accommodative" to a "neutral" stance. This recalibration indicates that the RBI is aware of potential risks, including global trade tensions, volatile commodity prices, and uncertainties surrounding the monsoon. By adopting a neutral stance, the RBI retains the flexibility to respond to evolving economic dynamics and adjust its policy as needed.
The rationale behind these seemingly contradictory moves lies in the evolving macroeconomic landscape. Headline CPI inflation has moderated to a nearly six-year low of 3.2% in April 2025, driven by declining food prices and subdued core inflation. The RBI has revised its inflation forecast for FY26 downwards to 3.7%, expressing confidence in maintaining price stability. Simultaneously, the Indian economy has demonstrated resilience, with real GDP growth projected at 6.5% for FY26. The RBI expects strong agricultural output, sustained momentum in the services sector, and a pickup in private investment to support this growth trajectory.
The RBI's recent policy actions are expected to have a broad-based positive impact on the markets and the economy. Borrowers, particularly those with home and auto loans, will benefit from lower interest rates and reduced EMIs. Banks are likely to experience improved credit demand and higher net interest margins. The real estate sector is poised for growth as lower interest rates make home loans more affordable, potentially boosting demand for developers and housing finance companies.
However, the RBI's policy decisions also entail certain risks and challenges. The shift to a neutral stance suggests that the central bank may pause further rate cuts in the near term, depending on how the economy evolves. The effectiveness of the policy measures in stimulating sustainable growth will depend on various factors, including the transmission of lower interest rates to borrowers, the revival of private investment, and the management of inflationary pressures.
Several agencies, including the World Bank and the United Nations, have acknowledged India's strong economic performance and its potential to become the world's fourth-largest economy. While some have revised their growth forecasts downwards due to global uncertainties, India is still projected to maintain its status as one of the fastest-growing major economies. The RBI's proactive policy measures, combined with favorable domestic conditions, provide a solid foundation for sustained economic growth and development.
