RBI cuts rate by 50 bps to 5.5%, CRR by 100 bps releasing Rs 2.5 trillion liquidity in banks

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday announced that the Monetary Policy Committee (MPC) decided to reduce the policy repo rate by 50 basis points (bps) to 5.5 per cent. The MPC decided to change the stance from ‘Accommodative’ to ‘Neutral’, he added.

Further, in a major boost to banks, the RBI announced a reduction of the cash reserve ratio by 100 bps. The Governor announced that the CRR cut would be done in four equal tranches during the year.

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“Will release primary liquidity of Rs 2.5 lakh crore in the banking system. CRR cut in four tranches 25 bps each starting from September 6, October 4, November 1, and November 29 this year,” the Governor added.

On the GDP projections, Governor Malhotra said the real GDP growth rate for this year 2025-2026, is projected at 6.5 per cent, continuing with our earlier forecast, with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.4 per cent.

Notably, the Indian economy demonstrated robust performance with a 7.4 per cent GDP growth in the January-March 2025 quarter. The growth was driven by sectors like construction and manufacturing.

On the inflation, Sanjay Malhotra announced the inflation forecasts for this fiscal year with Q1 at 2.9 per cent, Q2 at 3.4 per cent, Q3 at 3.9 per cent, and Q4 at 4.4 per cent.

“Inflation has softened significantly over the last six months from above the tolerance band in October 2024 to well below the target with signs of a broad-based moderation,” the Governor added.

CPI headline inflation continued its declining trajectory in March-April, with headline CPI inflation moderating to a nearly six-year low of 3.2 per cent (y-o-y) in April 2025.

“On both inflation and growth fronts, the Indian economy is progressing well and broadly on expected lines. Strong macroeconomic fundamentals and benign inflation outlook provide space to monetary policy to support growth, while remaining consistent with the goal of price stability,” the Governor highlighted.

The MPC has now cut rates by 100 basis points in 2025, starting with a quarter-point reduction in February, its first cut since May 2020. It made a similar-sized cut in April.