RBI shocks markets: Sanjay Malhotra cuts repo rate 50 bps to 5.5%—what’s next?

The Reserve Bank of India (RBI), under Governor Sanjay Malhotra, shocked markets by cutting the repo rate by 50 basis points to 5.5% on June 6, 2025, a more aggressive move than the widely expected 25 bps cut.

This marks the third consecutive rate cut in 2025, following reductions in February and April, aimed at stimulating economic growth amid subdued inflation and global uncertainties. The Monetary Policy Committee (MPC) cited inflation largely under control, with retail inflation at a six-year low of 3.2% in April, and a stable macroeconomic environment as key factors.

"This move aims to boost economic activity, encourage borrowing and investment, and foster job creation," the RBI stated, signaling a dovish stance despite external challenges.

Housing sector experts welcomed the cut, expecting it to significantly boost demand. CREDAI National President Shekhar Patel said, "We are expecting 50 basis point reduction in repo rate. This will boost housing demand to a great extent." Housing loan outstanding has risen to Rs 30 lakh crore as of April 18, 2025, up from Rs 27.41 lakh crore year-on-year, reflecting growing credit demand.

Lower repo rates translate into reduced borrowing costs, with home loan interest rates dropping below 8% in some banks, according to Umesh Gowda H A, Chairman of Sanjeevini Group. This eases equated monthly installments (EMIs) for borrowers.

Economists expect the RBI to revise GDP and inflation projections for FY2026, with inflation forecasted at 4%. Despite a strong economic growth of 6.5% in FY2024-25 and 7.4% in Q4 FY25, the RBI remains cautious due to global trade uncertainties.

The MPC also shifted its stance from accommodative to neutral, acknowledging limited space for further monetary easing. Market reactions were mixed, with Sensex dipping slightly post-announcement.

Overall, the RBI's surprise 50 bps repo rate cut underscores its commitment to supporting growth while managing inflation risks in a complex global environment.

The Reserve Bank of India, led by Governor Sanjay Malhotra, surprised markets by cutting the repo rate 50 basis points to 5.5% on June 6, 2025, aiming to boost economic growth amid subdued inflation and global uncertainties. This marks the third consecutive rate cut, easing borrowing costs for homebuyers and businesses.