The Reserve Bank of India (RBI) held its 55th Monetary Policy Committee (MPC) meeting from June 4 to 6, 2025. After reviewing current economic conditions, the RBI made a key decision, cutting the repo rate by 50 basis points. This is the second rate cut in 2025. It shows that the central bank is now focusing more on boosting economic growth. Let’s dive into what this means and why it matters.
The repo rate is the interest rate at which the RBI lends money to commercial banks. When this rate is reduced, banks can borrow at a lower cost. In turn, they may offer lower interest rates on loans to consumers and businesses. This helps people spend more and encourages businesses to invest, both of which push the economy forward.
Here’s how the new rates stand:
The RBI has now cut the repo rate by 100 basis points in total since February 2025.
Inflation refers to the general rise in prices of goods and services. If prices rise too fast, it affects everyone, especially households. But if inflation falls too much, it can slow down business profits and spending. The RBI’s job is to keep inflation stable, around 4%, while also supporting growth.
In April 2025, inflation (as measured by the Consumer Price Index or CPI) dropped to 3.2%. It’s the lowest it’s been in almost 6 years. This drop is mainly because:
With these positive signs, the RBI has revised its inflation forecast for 2025-26 to 3.7%. Which sits comfortably within its target range of 2% to 6%.
India’s economy is showing steady improvement. In the last quarter of FY24 (Jan-Mar 2025), India’s GDP grew by 7.4%. That’s higher than the 6.4% growth in the previous quarter. For the entire year (2024-25), India’s GDP growth stood at 6.5%.
RBI expects this momentum to continue. The growth forecast for 2025-26 is also 6.5%. This is based on:
Quarter-wise GDP projections for FY26 are:
The MPC has moved from an ‘accommodative’ to a ‘neutral’ stance—signalling a more measured, balanced policy outlook ahead.
With limited policy space left after successive rate cuts, the RBI will now take a data-driven view. Future decisions will depend on how inflation, demand conditions, and global developments unfold.
While India’s internal situation looks stable, the global economy remains uncertain.
Here’s what the RBI is watching:
Even though global oil prices have fallen recently, and markets are less volatile, the risks have not disappeared. The RBI will continue monitoring these global factors.
Key Takeaways
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