The Monetary Policy Committee (MPC) of India’s central bank, the Reserve Bank of India (RBI), has cut the repo rate – the rate at which RBI lends to banks – by 50 basis points. This brings the current repo rate to 5.50%.

This is the third consecutive time in a row that the RBI has cut its repo rate. After the previous two MPC meetings in February and April 2025 respectively, the rate had been reduced by 25 basis points each. When the MPC cut the repo rate in February 2025, it did so after more than five years. It had cut the repo rate last in May 2020 by 40 basis points to 4% and held it at that level till May 2022. Since then, the RBI had been raising the repo rate steadily till February 2023. Since February 2023, it has kept the rate unchanged at 6.50% until February 2025.

Explaining the change in policy stance, RBI Governor Sanjay Malhotra said, “After having reduced the policy repo rate by 100 bps in quick succession since February 2025, under the current circumstances, monetary policy is left with very limited space to support growth. Hence, the MPC also decided to change the stance from accommodative to neutral. From here onwards, the MPC will be carefully assessing the incoming data and the evolving outlook to chart out the future course of monetary policy in order to strike the right growth-inflation balance. The fast-changing global economic situation too necessitates continuous monitoring and assessment of the evolving macroeconomic outlook.”

Reposing faith in the country’s growth potential, the governor retained real GDP growth projections for 2025-26 at 6.5 per cent, the same figure indicated after the previous MPC meeting. Q1 growth is indicated to be at 6.5%; Q2 at 6.7%; Q3 at 6.6% and Q4 at 6.3%. Last month, the National Statistical Office (NSO) had announced India’s real GDP for 2024-25 at 6.5%.

On inflation, however, the central bank has projected an even lower annual rate of 3.7% (it had indicated an annual rate of 4% after the previous meeting) with Q1 at 2.9%; Q2 at 3.4%; Q3 at 3.9%; and Q4 at 4.4%.

• Repo Rate: The repo rate is the rate at which RBI lends short-term funds to commercial banks against government securities.A lower repo rate brings down the cost of borrowing for banks, enabling them to lend at lower interest rates to consumers. After the current repo rate cut in June 2025, the repo rate stands at 5.50%.

• Reverse Repo Rate: The reverse repo rate is the interest rate that the RBI pays to commercial banks for the funds they deposit with the central bank. The current reverse repo rate stands at 3.35%.

• Cash Reserve Ratio: CRR is the percentage of a bank’s net demand and time liabilities (NDTL) required to be maintained in liquid cash with the RBI as a reserve.CRR was reduced by 100 basis points to 3% after the current MPC meeting. This cut is expected to release as much as INR 2.5 lakh crore bank funds into the financial system, easing liquidity significantly.

• Statutory Liquidity Ratio: SLR is a minimum percentage of deposits that a commercial bank is required to maintain in the form of liquid cash, gold or other securities as reserve before offering credit to customers. These reserves are maintained by banks themselves and not with the RBI.

• Liquidity Adjustment Facility: LAF is a monetary policy tool used by the RBI allowing banks to either borrow money or lend to the RBI for managing short-term liquidity imbalances. This mechanism helps manage liquidity pressures and maintain stability.

• Standing Deposit Facility: SDF is the rate at which the RBI accepts uncollateralised deposits from banks on an overnight basis. SDF is 25 basis points lower than the current repo rate.

• Marginal Standing Facility Rate: Under MSF, scheduled commercial banks can obtain liquidity overnight in case inter-bank liquidity dries up. The MSF rate is higher than the repo rate and is typically used in case of emergencies.

• Bank Rate: Also known as discount rate, this is the rate at which commercial banks and lending institutions borrow money from the RBI withoutinvolving any securities. The bank rate is lower than the repo rate.