RBI cuts repo rate by 50 bps.reverses stance to 'neutral'

Announces staggered CRR reduction of 100 bps

- MANOJIT SAHA

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) on Friday cut the repo rate by 50 basis points (bps) to 5.5 per cent, surprising markets, which had largely priced in a more modest reduction of 25 bps. Frontloading of the repo rate cut is aimed at faster transmission of policy rate to lending and deposit rates.

This decision was welcomed by the bond market, but the exuberance was short-lived, as the RBI simultaneously shifted its policy stance from accommodative to neutral, citing limited room for further monetary accommodation.

Simultaneously, it announced a staggered 100-bp reduction in the cash reserve ratio (CRR), bringing it down to 3 per cent of banks' net demand and time liabilities—a level not seen in normal times.

The rate cut underscored the central bank's commitment to supporting economic growth. RBI Governor Sanjay Malhotra said growth remained below aspirational levels amid a challenging global environment and heightened uncertainty.

"It is imperative to continue to stimulate domestic private consumption and investment through policy levers to step up the growth momentum," said Malhotra while announcing the monetary policy outcome. "This changed growth-inflation dynamic calls for not only continuing with the policy easing but also frontloading the rate cuts to support growth."