RBI Lowers Repo Rate to 5.5%, Adopts Neutral Policy Stance

The Reserve Bank of India (RBI), in its bi-monthly monetary policy review, has cut the repo rate by 50 basis points (bps) to 5.5%, marking the third consecutive rate cut. This significant move reflects the central bank’s intent to support economic growth while keeping inflation within its target range.

The Monetary Policy Committee (MPC) also shifted its policy stance from “withdrawal of accommodation” to “neutral,” signalling a more balanced approach between growth and inflation control.

Key Rate Adjustments:

• Repo Rate: Reduced to 5.5%
• Standing Deposit Facility (SDF): Adjusted to 5.25%
• Marginal Standing Facility (MSF) & Bank Rate: Adjusted to 5.75%

The repo rate cut is expected to lead to a corresponding decline in external benchmark lending rates (EBLR), benefiting borrowers as banks are likely to lower their lending rates in the coming days.

Inflation and Growth Outlook

RBI Governor Sanjay Malhotra stated that the move is aligned with the objective of achieving the medium-term consumer price index (CPI) inflation target of 4%, within a band of +/- 2%. The inflation projection for FY26 has been revised downward to 3.7% from the earlier estimate of 4%.

Despite global and domestic uncertainties, the GDP growth forecast for FY2025-26 remains unchanged at 6.5%, although the MPC flagged geopolitical tensions and weather-related disruptions as potential risks to the outlook.

Forward Guidance

The next meeting of the Monetary Policy Committee (MPC) is scheduled from August 4 to 6, 2025. Analysts believe that the RBI may adopt a wait-and-watch approach moving forward, depending on how inflation and external factors evolve.

This decision is likely to bolster liquidity and boost credit demand across sectors, especially in housing, auto, and MSMEs, potentially accelerating India’s post-pandemic recovery trajectory.

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