RBI cuts rates more than expected on inflation cooldown

June 10, 2025 (MLN): The Reserve Bank of India (RBI) cut interest rates by a bigger-than-expected margin, citing expectations for a sustained cooling in inflation and growing risks to Indian economic growth.

RBI Governor Sanjay Malhotra also said that the bank had now shifted its stance to ‘neutral’ from ‘accommodative,’ citing heightened global economic uncertainty.

Malhotra also cut the RBI’s consumer price index inflation outlook for the current fiscal year.

The RBI cut its benchmark policy repo rate by 50 basis points to 5.5% from 6.0%, more than market expectations for a 25 bps.

The cut was the RBI’s third reduction after two 25 bps cuts earlier in the year, bringing its total rate cuts this year to a full 1%.

The RBI also cut its cash reserve ratio which dictates the amount of cash to be held as reserves by local banks by 100 bps to 3% from 4%.

The cut was aimed largely at supporting local liquidity conditions.

Speaking during a livestream, Malhotra said the central bank was front-loading its monetary easing in the face of heightened global economic uncertainty.

The RBI’s outsized cut comes as CPI inflation moderated sharply in March and April, slipping well below the RBI’s 4% annual target.

Malhotra said the RBI now expects CPI inflation at 3.7% in fiscal 2026, down from its prior forecast of 4%.

Malhotra maintained the RBI’s fiscal 2026 GDP forecast held at 6.5%.

While the RBI was widely expected to cut rates on Friday, the outsized, 50 bps cut indicates increased caution over growth and inflation in the central bank.

Malhotra flagged resilience in the Indian economy despite heightened uncertainty over U.S. trade tariffs, noting that March quarter gross domestic product data blew past expectations.

But he noted that growth risks still remained in the coming quarter.

The bigger cut caught Indian markets off guard, with the rupee weakening slightly after the move.

India’s Nifty 50 stock index also reversed initial losses to trade mildly positive after the decision.

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