Business News

The Reserve Bank of India’s Monetary Policy Committee (MPC) held its 55th meeting from June 4 to 6, 2025. The meeting was chaired by RBI Governor Sanjay Malhotra and attended by members Dr Nagesh Kumar, Saugata Bhattacharya, Prof Ram Singh, Dr Poonam Gupta, and Dr Rajiv Ranjan.Repo rate cut and interest rates After reviewing the current economic situation, the MPC decided to cut the policy repo rate by 50 basis points (bps) to 5.50% with immediate effect. Along with this, other rates were adjusted as follows:Standing Deposit Facility (SDF) rate: 5.25%Marginal Standing Facility (MSF) rate and Bank Rate: 5.75%This move aims to keep inflation close to the target of 4%, with a tolerance band of +/- 2%, while also supporting economic growth.Economic growth and outlookAccording to provisional data from the National Statistical Office (NSO) released on May 30, 2025:Real GDP growth in Q4 of 2024-25 was 7.4%, up from 6.4% in Q3.Real Gross Value Added (GVA) increased by 6.8% in Q4.For the entire 2024-25 year, GDP growth was 6.5%, and GVA growth was 6.4%.The MPC expects the economy to maintain this momentum in 2025-26, supported by private consumption and increased fixed capital investment. Rural economic activity remains strong, boosting rural demand, while the expanding services sector helps urban demand recover.Investment activity is expected to rise thanks to higher capacity use, better financial health of companies, and government spending on infrastructure. However, uncertainties like global trade tensions and weather risks remain. The government’s free trade deal with the UK and progress on other trade agreements are positive signs for exports.The agriculture sector is expected to do well with forecasts of a good monsoon and strong allied activities. Services should keep growing steadily.Taking all this into account, the MPC projects real GDP growth for 2025-26 at 6.5%, broken down by quarters as:Q1: 6.5%Q2: 6.7%Q3: 6.6%Q4: 6.3%The risks to growth are evenly balanced.RBI cuts CRR by 100 bpsIn a major move to support the banking system, the Reserve Bank of India (RBI) has announced a 100 basis points (bps) cut in the Cash Reserve Ratio (CRR), bringing it down from 4% to 3% of Net Demand and Time Liabilities (NDTL). This decision was taken during the 55th meeting of the Monetary Policy Committee (MPC).The cut will happen in four steps, with 25 bps being reduced in each phase—starting on September 6, and followed by November 1 and November 9. The move is expected to release Rs 2.5 lakh crore into the banking system by the end of November 2025.RBI Governor Sanjay Malhotra said, “This gradual cut in CRR is meant to offer long-lasting liquidity support without affecting financial stability. Since January, we’ve already added Rs 9.5 lakh crore to durable liquidity, and this is a continuation of that plan.”Inflation trends and outlookInflation, measured by the Consumer Price Index (CPI), has been falling steadily. It hit a near six-year low of 3.2% in April 2025, helped by six months of falling food prices. Fuel prices, however, showed a slight increase due to LPG price hikes.Core inflation (which excludes food and fuel) remained steady, despite rising gold prices. The outlook suggests inflation will stay low because of:Record wheat and pulses production,Expected good monsoon and crop prospects,Easing prices of crude oil and other commodities.The MPC now projects CPI inflation for 2025-26 at 3.7%, with quarterly estimates:Q1: 2.9%Q2: 3.4%Q3: 3.9%Q4: 4.4%Weather-related risks and global tariff issues remain concerns, so the committee will watch these closely.Why the rate cut and change in policy stance?Inflation has dropped significantly from above the RBI’s target band last October to below target levels now. This broad easing in inflation gives the MPC confidence that inflation will remain close to or slightly below the 4% target during the year.At the same time, growth is still below expectations due to global challenges and uncertainty. To boost private consumption and investment, the MPC felt it necessary to reduce the repo rate by 50 bps now, rather than in smaller steps.Five MPC members: Dr Nagesh Kumar, Prof Ram Singh, Dr Rajiv Ranjan, Dr Poonam Gupta, and Shri Sanjay Malhotra, voted for the 50 bps cut. Saugata Bhattacharya preferred a smaller 25 bps reduction.Since February 2025, the repo rate has been cut by 100 bps quickly, so there is limited room left to reduce rates further. Therefore, the MPC decided to change its stance from “accommodative” to “neutral”. Going forward, it will carefully monitor economic data and adjust policy to balance growth and inflation.The MPC will also keep a close eye on the fast-changing global economic environment.The MPC’s next meeting is scheduled from August 4 to 6, 2025.