Financial News: India Slashes Policy Rates By Bigger Than Expected

India Slashes Policy Rates By Bigger Than Expected 50 Bps; Shifts Stance To Neutral

(RTTNews) - The Reserve Bank of India lowered its interest rates by a sharper-than-expected 50 basis points on Friday, marking the third consecutive reduction as policymakers focused on propelling growth amid the softening inflation, but the central bank shifted its monetary policy stance to neutral signaling a pause ahead.

After the three-day meeting, the RBI Monetary Policy Committee, led by Governor Sanjay Malhotra, decided to cut the policy repo rate by 50 basis points to 5.50 percent.

Markets had anticipated only a quarter point reduction. The bank had reduced the repo rate by 25 basis points each in February and April.

Five members of the MPC voted to cut the rate by 50 basis points, while one member called for a quarter-point reduction.

"After having reduced the policy repo rate by 100 bps in quick succession since February 2025, under the current circumstances, monetary policy is left with very limited space to support growth," the bank said.

"Hence, the MPC also decided to change the stance from accommodative to neutral," RBI added.

The RBI Governor said the changes in growth-inflation dynamics call for not only continuing with the policy easing but also frontloading the rate cuts to support growth.

Malhotra said, ".today's monetary policy actions should be seen as a step towards propelling growth to a higher aspirational trajectory."

In order to provide durable liquidity, the MPC decided to reduce the cash reserve ratio by 100 basis points to 3.0 percent.

The bank downgraded its inflation forecast for the current financial year to 3.7 percent from 4.0 percent.

Real economic growth for 2025-26 was projected at 6.5 percent, which was unchanged from the previous outlook. The bank observed that the trade policy uncertainty continued to weigh on exports prospects.

The central bank projected real GDP growth at 6.5 percent in the June quarter, 6.7 percent in the September quarter, 6.6 percent in the December quarter and 6.3 percent in the three months to March.

"The risks are evenly balanced," the bank said.

ING economist Deepali Bhargava said the RBI is signaling a near-term pause, while leaving the door open for more easing if growth or inflation weakens further.

The economist continues to expect another 25-basis point rate cut in the fourth quarter of this year.

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