What RBI's steep rate-cut signals

The Reserve Bank of India (RBI) surprised markets by frontloading its monetary easing with a 50-basis point rather than the consensus 25-basis point repo rate cut on Friday.

- Roshan Kishore and Auhona Mukherjee

One basis point is one hundredth of a percentage point. By changing the policy stance from accommodative to neutral, it has also sent a signal that there could be no more rate cuts in the nearterm. What explains these decisions by the central bank? What do they mean for the Indian economy? Here are some charts that try to answer this question.

Repo rate is now at a three-year low

After Friday's decision, the repo rate now stands at 5.5%, the lowest it has been since August 2022 when it was at 5.4%. The current monetary easing cycle, which began with a 25-basis point cut in February 2025, has now PIC cumulatively administered a 100-basis point THE rate cut. As far as a policy stance is concerned, the RBI has changed it back to neutral after just a two-month window of an accommodative stance, making it the shortest accommodative policy stance since the inflation targeting framework was adopted in October 2016. To be sure, the RBI has described its stance-change action as frontloading of the monetary easing rather than some adverse development in the growth-inflation dynamics.

See Chart 1: Repo rate and policy stance

However, a delayed transmission effect has not led to lower retail interest rates