Monetary authority maintains repo rate at 5.5 percent, continues with neutral policy stance
The Reserve Bank of India (RBI) is working to maintain a delicate balance, aiming to keep inflation in check while supporting growth through an accelerated easing in the monetary policy cycle. This approach was evident in the RBI's monetary policy meeting on June 6, where they announced a 50 basis points cut in the repo rate from 6% to 5.5%.
This move was part of a series of repo rate cuts in 2025, totalling 100 basis points. The RBI's goal was to boost liquidity and stimulate growth amid global economic uncertainties such as trade tensions. As of August 2025, the repo rate remains steady at 5.5%, signalling a cautious "neutral" stance.
The RBI's actions have had a positive impact on Indian economic growth. The Monetary Policy Committee (MPC) forecasts India's GDP growth at 6.5% for 2025-26, a reflection of optimism supported by prior rate cuts and liquidity expansion. The policy easing encourages banks to lower lending rates, potentially increasing credit flow to businesses and consumers, thereby boosting spending and investment.
Moreover, liquidity measures like reducing the Cash Reserve Ratio (CRR) to 3% improve banks’ ability to lend. The economy benefits from favourable demographics, urban consumption growth, and a rising middle class, which, combined with accommodative monetary policy, underpin a positive growth outlook.
However, while inflation has moderated, with June 2025 CPI inflation falling to around 2.1%, it is forecasted to rise to about 4.9% in Q1 FY27 (April–June 2026), slightly above the RBI’s 4% target. The gradual rise in inflation limits the scope for further aggressive repo rate cuts in the near term, compelling the RBI to maintain a balanced approach between supporting growth and containing inflation risk.
In conclusion, the RBI’s monetary policy easing via repo rate cuts in 2025 has positively impacted growth prospects in India by enhancing liquidity and credit transmission, while inflation control efforts have kept price increases moderate, though inflation is expected to edge up gradually. The RBI is balancing these factors with cautious policy guidance going forward.
References:
- RBI Press Release
- Economic Times
- Business Standard
- Financial Express
- Livemint
The Reserve Bank of India's (RBI) monetary policy easing, as evidenced by repo rate cuts in 2025, is aimed at boosting liquidity and stimulating growth in the business sector. The MPC's forecast for India's GDP growth at 6.5% for 2025-26 suggests a positive impact on business growth.
The RBI's actions, including reducing the Cash Reserve Ratio (CRR), encourage banks to lower lending rates, potentially increasing credit flow to businesses. This increased credit flow can potentially boost spending and investment, supporting the growth of various businesses.
