The RBI cuts the repo rate to 5.5 per cent in 2025

The repo rate is the rate at which the Reserve Bank of India lends money to commercial banks, usually against government securities, under the liquidity adjustment facility. It is the RBI's main policy rate, set by the Monetary Policy Committee, which is required to keep consumer price inflation at 4 per cent, within a band of 2 percentage points on either side, while supporting growth. When the repo rate falls, banks' borrowing costs fall, and in time, lending and deposit rates tend to follow, though transmission is rarely immediate or complete.

At the start of 2025, the repo rate stood at 6.50 per cent, where it had been since early 2023. The Monetary Policy Committee, chaired by Governor Sanjay Malhotra, cut the rate by 25 basis points in February 2025, to 6.25 per cent, and by a further 25 basis points in April 2025, to 6.00 per cent, while shifting its stance from neutral to accommodative, signalling a priority for supporting growth. In June 2025, it cut by a larger 50 basis points, to 5.50 per cent, taking the cumulative cut since February to 100 basis points.

The June decision was accompanied by two other steps. The Committee shifted its stance back from accommodative to neutral, signalling that, having front-loaded support, it saw limited space for further cuts without new information. It also announced a 100-basis-point cut in the cash reserve ratio, from 4 per cent to 3 per cent, to be implemented in four equal tranches between September and November 2025, injecting durable liquidity estimated at 2.5 lakh crore rupees into the banking system.

The cuts were made possible by easing inflation. Consumer price inflation had moderated from levels above the tolerance band in late 2024 to about 3.16 per cent in April 2025, driven by falling food prices, and the RBI revised its inflation forecast for the year down. The Committee kept its growth projection broadly unchanged, while noting global uncertainties, including tariffs and trade tensions, which could affect exports and growth in the second half of the year.

In August and October 2025, the Committee held the repo rate unchanged at 5.50 per cent, citing tariff uncertainties and the need to assess the effect of cuts already made. The 2025 easing cycle therefore illustrates a central bank's balancing act: cut too slowly, and growth suffers; cut too fast, and inflation or financial stability may suffer, and the stance language matters as much as the rate itself.