RBI's 50 bps Repo Rate Cut Sends Markets Soaring!

On June 6, 2025, the Reserve Bank of India (RBI) surprised the markets with a significant 50-basis-point (bps) cut in the repo rate, bringing it down to 5.5%. This bold move marks the third consecutive rate cut since February, totalling a 100 bps cut. The announcement was made by the RBI's Monetary Policy Committee (MPC), headed by Governor Sanjay Malhotra.

Let’s break it down.

Key Takeaways from the RBI's Announcement

• Repo Rate Cut: A sharp 50 bps reduction to 5.5%, the third consecutive cut in 2025.
• CRR Cut: The Cash Reserve Ratio (CRR) is set to be cut by 100 bps from 4% to 3% in four tranches, releasing Rs 2.5 lakh crore into the banking system.
• Total Liquidity Injection: Since January, the RBI has pumped Rs 9.5 lakh crore into the economy to boost growth.
• Shift in Stance: Despite substantial rate cuts, the RBI's shift from an "accommodative" to a "neutral" stance signals caution. Global trade tensions and commodity price risks may slow growth, prompting the RBI to pause after three cuts and assess the impact.

Why the Rate Cut Matters: Implications for the Economy

• Cheaper Loans

Lower repo rates mean cheaper loans for businesses and consumers. Expect banks to offer lower rates on home loans and auto loans.

• Stronger Corporate Growth

The rate cut provides easier access to capital, encouraging higher corporate capital expenditure (capex), which could lead to increased profits.

• Bank Profits

As loan disbursements increase, banks are poised to benefit from higher net interest margins. This optimism is evident in Nifty Bank, which reached a new record high of 56,695 today.

• Consumer Impact

With the reduction in the CRR, more liquidity is available for lending, leading to better rates for consumers. This is great news for the real estate market, which saw the Realty index rising nearly 5%, and for the Auto sector, which gained over 1% today.

The Bigger Picture: What’s Driving These Decisions?

Governor Malhotra, in his statement, noted that India’s GDP growth for FY25 is expected to be 6.5%, a slowdown from the previous year’s 9.2%.

With industrial activity weakening and the Index of Industrial Production (IIP) falling to an 8-month low of 2.7% in April 2025, the economy needs all the support it can get, but it’s not in crisis mode.

Inflation: A Breathing Space

• Inflation is finally under control. Retail inflation, measured by the Consumer Price Index (CPI), dropped to 3.16% in April 2025, staying below the RBI’s 4% target for three consecutive months.
• Wholesale inflation also eased to a 13-month low of 0.85%.
• Governor Malhotra revised the CPI inflation forecast for FY25 to 3.7%, expressing confidence in staying below the target.

What’s Next?

While this rate cut is a clear sign that the RBI is pulling out all stops to bolster growth, the neutral stance hints at caution. The “last mile of disinflation” still poses a challenge and the RBI will need to keep a vigilant eye on the situation as they assess the impact of their actions.

Bottom Line: RBI’s aggressive rate cut, paired with the CRR reduction, is a win for consumers, businesses and the markets. As liquidity increases and borrowing costs decrease, the positive impact is being felt across various sectors.

The question now is: how will this play out in the coming months? 2025 is shaping up to be a stock-picker’s market, with volatility creating opportunities for those with a long-term perspective.

While geopolitical tensions continue to stir the pot, India is looking increasingly attractive as a long-term destination, especially when compared to the uncertain outlook elsewhere.

The key is focusing on businesses with solid fundamentals, clean balance sheets and sustainable growth trajectories. The stakes are high, but for disciplined, strategic investors, the rewards could be even higher.

Wondering how to capitalise on these developments and choose the right stocks?

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