RBI cuts repo rate by 50 bps to 5.5%; much above expectations

New Delhi: Reserve Bank Governor Sanjay Malhotra on Friday announced the bi-monthly monetary policy Friday saying the monetory policy committee (MPC) has decided to reduce policy rate by 50 basis points to 5.5 per cent.

The industry was expecting a third consecutive rate cut of 25 basis points or even bigger to propel economic growth against the backdrop of trade tensions triggered by Trump tariffs.

The central bank reduced the key benchmark lending rate (repo) by 25 bps points each in February and April this year on the recommendations of the governor-headed MPC.

A lowering of the repo rate leads reduction in lending rates by banks, which, in turn, brings down EMIs for retail and corporate borrowers.

Key highlights of Malhotra's address:

1. Indian economy presents strength, stability and opportunity amid global concerns
2. Indian economy growing at a very fast pace, we are making all efforts to grow even faster in our vision of Viksit Bharat
3. Indian economy offers immense opportunities to investors
4. Inflation outlook for FY26 revised downwards to 3.7 pc, from 4 pc
5. After reducing repo by 100 bps in quick succession, monetary policy left with limited space to support growth
6. Govt's continued thrust on capex should help revive investment activity
7. From now MPC will carefully assess income data, evolving outlook to chart out future policy.
8. RBI retains GDP growth forecast for current fiscal at 6.5 pc, geopolitical tensions and weather vagaries pose headwinds
9. Current account deficit (CAD) for FY'25 to remain low; FY26 within sustainable level
10. Core inflation remains largely stable, benign prices expected for major items going forward
11. Core inflation largely remains stable, contained; need to be watchful of weather- related uncertainties, tariff concerns
12. India continues to remain attractive destination despite moderation in net FDI
13. Forex reserves at USD 691.5 billion, sufficient to fund more than 11 months of import needs, external sector remains resilient
14. MPC felt frontloading of rate cut will boost growth
15. There is stability in the front of price, financials and oil
16. 'Comfortable' surplus liquidity situation has reinforced faster rate transmission
17. RBI reduces cash reserve ratio by 100 bps, will release Rs 2.5 lakh crore of bank funds