RBI's Bold Move: A 50 Basis Point Repo Rate Cut to Stimulate Economic Growth

RBI Slashes Repo Rate by 50 BPS to 5.5%, CRR Down by 100 BPS

What's Happening?

In a significant policy shift, the Reserve Bank of India (RBI) has announced a 50 basis point cut in the repo rate, bringing it down to 5.5%. Additionally, the Cash Reserve Ratio (CRR) has been reduced by 100 basis points. This move is designed to lower borrowing costs and increase liquidity in the banking system, thereby stimulating economic activity. The reduction in the repo rate is expected to make loans more affordable for consumers and and businesses alike.

Impact on Consumers and Businesses:

• For instance, the EMI on a ₹1 crore home loan with a 20-year tenure is projected to decrease by approximately ₹3,100 per month.
• The CRR cut is anticipated to release around ₹2.5 lakh crore into the banking system, enhancing liquidity and enabling banks to extend more credit.

Economist's View and Policy Shift:

Economists view this as a strategic move to counteract weak household consumption and support growth, especially in urban areas where stagnant wages have constrained demand. The RBI's policy stance has shifted from "accommodative" to "neutral," indicating a pause to assess the impact of its actions. Most economists now expect no further rate changes through the end of the fiscal year in March 2026.

Industry Reaction:

Veteran banker Uday Kotak has endorsed the RBI's decision as "bold and strategic," emphasizing the importance of such significant policy interventions in responding effectively to prevailing macroeconomic challenges and encouraging credit flow to support growth.

Stock Market Response:

The stock market responded positively, with the Nifty 50 climbing 0.94% to 24,982.25 and the BSE Sensex increasing 0.9% to 82,163.22. Most sectors saw gains, with realty up 3.5%, auto 1%, and financials 2%. This decisive action by the RBI underscores its commitment to fostering economic growth and stability in the face of evolving challenges.