June 6 (Reuters) - The Reserve Bank of India (RBI) cut its key repo rate by a larger-than-expected 50 basis points (bps) on Friday, a third consecutive reduction, and slashed the reserve ratio for banks as muted inflation provided space for policymakers to focus on supporting economic growth.

The Monetary Policy Committee (MPC), which consists of three RBI officials and three external members, cut the repo rate (INREPO=ECI) , opens new tab to 5.50%. It has now cut rates by 100 bps in 2025, starting with a 25 bps reduction in February.

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Additionally, the RBI lowered the cash reserve ratio by 100 bps to 3%, further boosting the already surplus liquidity in the banking system.

COMMENTARY:

RAGHVENDRA NATH, MD, LADDERUP ASSET MANAGERS, MUMBAI

"This is twice the reduction that most economists had anticipated."

"The RBI's decision to gradually reduce the CRR in four equal tranches of 25 basis points over this year is likely to enhance liquidity in the system and lower the cost of funds for banks, leading to lowering (the) cost for borrowers and thus supporting private investment and domestic consumption."

VINIT BOLINJKAR, HEAD OF RESEARCH, VENTURA SECURITIES, MUMBAI

"This move brings major relief to borrowers, with EMIs set to drop further following a cumulative 100 bps cut since February. The MPC also shifted its stance to 'neutral' and announced a staggered 100 bps CRR cut to 3%. These measures offer timely support to the economy and markets amid global uncertainties."

ABHISHEK BISEN, HEAD, FIXED INCOME, KOTAK MAHINDRA AMC, MUMBAI

"The RBI finally goes for 'whatever it takes' moment for India with the confidence of keeping inflation within target and aspiration of growing higher."

"With the stance change to 'neutral' and RBI Governor statement of frontloading of the rate cut in this policy, we expect further rate action to be data dependent. However, we believe there is scope for more 25 bps rate cut in this cycle, though the timing of the cut is uncertain. Headwinds continue to be from global variables with uncertainty of U.S. tariffs and tense geopolitical situation in parts of the world."

SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM

"The RBI has delivered a surprise bonanza with an outsized rate cut and a CRR cut... The change in stance to 'neutral' perhaps indicates that the RBI could now become data dependent and remain on pause at least for the next two meetings. Any further rate cuts would be a function of how growth performs in H1 FY26."

"It is highly likely that the repo rate remains at 5.5% over the course of 2025 now."

RADHIKA RAO, SENIOR ECONOMIST, DBS BANK, SINGAPORE

"The policy committee provided a double-barrelled boost by undertaking a 50 bps rate cut as well as a durable liquidity infusion via the CRR cut, tapping into the window of below-target inflation this quarter."

"Official inflation forecast for fiscal 2026 was also trimmed. This was balanced by a shift to 'neutral' stance, signaling that the focus will now shift towards policy transmission. With our forecast of the terminal rate being met, further rate reductions are likely if the growth momentum weakens anew."

UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

"The higher-than-expected repo rate cut comes along with a shift in the stance back to 'neutral'. This clearly points towards future decisions being more data dependant given the significant global uncertainties."

"Furthermore, the sharp drop in CRR is likely to keep liquidity conditions suitably comfortable to ensure monetary transmission."

MANAN SHAH, MD, REALTY DEVELOPER MICL GROUP, MUMBAI

"For the real estate and infrastructure sectors, this is not merely a reduction in borrowing costs - it is a catalyst for renewed buoyancy, capital deployment and project acceleration."

"As liquidity improves and sentiment strengthens, we anticipate a cycle where homebuyer confidence rises, developers unlock new investments and ancillary industries gain momentum."

MADHAVI ARORA, CHIEF ECONOMIST, EMKAY GLOBAL SERVICES, MUMBAI

"The RBI appears to have front-loaded all policy actions, be it higher-than-expected rate cuts or infusing durable, albeit staggered, liquidity via lower CRRs."

"All of that now implies that the ball is in the banks' court to transmit easier financial conditions faster."

AMIT KUMAR GUPTA, FOUNDER AND CHIEF INVESTMENT OFFICER OF FINTREKK CAPITAL, NEW DELHI

"Full liquidity bazooka. Along with a 50 bps rate cut, the RBI has given lenders full plate to go ahead and bring back credit growth. CRR cut by 100 bps is in four tranches of 25 bps. But that's alright."

"Liquidity easing slowly is good for corporations."

ANIL REGO, FOUNDER & FUND MANAGER AT RIGHT HORIZONS PMS, BENGALURU

"This marks a key turning point in India's monetary approach, signaling a move from active easing to a more balanced, data-dependent stance amid rising global uncertainties and volatile capital flows."

"The cumulative 100 basis point rate cut since February underscores the RBI's urgency to support demand, while the shift to a 'neutral' stance signals a more cautious, data-driven approach to balancing growth and inflation risks going forward."

GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA SECURITIES, MUMBAI

"An assessment of growth being lower than aspirations and inflation continuing to remain benign offered room for RBI's MPC to cut policy repo rate by 50 bps. However, a 100 bps CRR cut along with policy repo rate cut of 25 bps suggests an assertive growth bias of the policy, especially in uncertain global environment."

"(The) 100 bps cut in CRR will ensure quick transmission of rates, support net interest margins (NIMs) for banks and ensure ample liquidity to aid credit demand when demand rises."

JYOTI PRAKASH GADIA, MANAGING DIRECTOR AT RESURGENT INDIA, MUMBAI

"The repo rate cut of 50 basis points by RBI amounts to bringing a welcome surprise to support the growth, taking into account the grand opportunities emerging from a strong and stable economy."

"The frontloading of the rate cut is, however, accompanied with a change in stance from 'accommodative' to 'neutral', which implies that further rate cuts may not come sooner and RBI will watch the future scenario of growth inflation matrix. This is considered a wise step to give the chance for early credit and investment growth to take the economy to a new trajectory before we lose the opportunity due to future likely uncertainty."

SUJAN HAJRA, CHIEF ECONOMIST AND EXECUTIVE DIRECTOR, ANAND RATHI GROUP, MUMBAI

"The RBI's 50 bps policy rate cut, coupled with a 100 bps reduction in the cash reserve ratio (CRR), exceeded both our expectations and the market consensus. As the Governor indicated, this frontloading of monetary easing reflects a clear intent to support growth while inflation remains benign."

"At the same time, the policy stance has been shifted from 'accommodative' to 'neutral'. Although this change might be read as a signal that the rate cut cycle is nearing its end, we believe it is aimed at tempering any potential 'irrational exuberance' in the financial markets."

"Overall, the policy decision is constructive for both equity and debt markets. In equities, interest-sensitive sectors are poised to benefit. While lower rates and policy transmission could have weighed on bank net interest margins in the near term, the sizeable CRR cut provides a significant offset, making this a particularly positive move for banks."

SACHCHIDANAND SHUKLA, GROUP CHIEF ECONOMIST AT LARSEN & TOUBRO, MUMBAI

"The RBI has gone ahead and utilized all the space afforded by inflation undershoot and underwhelming growth to deliver an outsized and less expected 50 bps rate cut."

"Even more surprising is the fact that it has reversed its stance back to 'neutral'. This must be one of the quickest changes or reversals in stance as it had moved to 'accommodative' stance only in its last policy in April, which meant only rate cuts or pauses, but going back to 'neutral' means RBI can move either side."

https://www.reuters.com/world/india/view-india-central-bank-delivers-outsized-50-bps-rate-easing-lowers-cash-reserve-2025-06-06/