In a significant policy move aimed at revitalizing economic growth, Reserve Bank of India (RBI) Governor Sanjay Malhotra announced a 50 basis point reduction in the benchmark repo rate, bringing it down from 6% to 5.5%. The decision comes amid a sharp decline in inflation, which has now fallen below the central bank’s comfort threshold of 4%.
In a press briefing on Friday, Governor Malhotra emphasized that the reduction in the policy rate reflects the RBI’s confidence in the current disinflationary trend. He also revealed a cut in the Cash Reserve Ratio (CRR) by 100 basis points, which will be implemented in four equal stages of 25 basis points each, beginning on September 6 and continuing through October 4, November 1, and November 29. This phased approach is projected to infuse approximately ₹2.5 lakh crore into the banking system, enhancing liquidity and facilitating credit expansion.
Lower interest rates typically translate to more affordable loans for consumers and businesses, potentially driving up consumption and investment. However, the real impact of this move will depend heavily on how promptly commercial banks transmit the lower rates to their customers.
This latest rate cut marks a total reduction of 100 basis points in 2025 alone, prompting the RBI to revise its monetary policy stance from “accommodative” to “neutral.” According to Malhotra, this adjustment will allow the central bank to adopt a more balanced approach in monitoring inflation and economic growth trends.
India’s headline inflation has now eased to 3.2%, signaling a broad-based decline in prices. In light of this, the RBI has revised its inflation forecast for the fiscal year downward, from 4% to 3.7%. The fall in inflation expectations, coupled with a recent drop in global crude oil prices, further supports a positive near-term inflation outlook.
Governor Malhotra underscored that India remains the fastest-growing major economy globally. He noted the strength of corporate, banking, and government balance sheets, as well as a stable external sector, as indicators of the country’s strong economic fundamentals. He also highlighted the ongoing opportunities for investors, driven by favorable demographics, rapid digital transformation, and resilient domestic demand.
On the agricultural front, concerns related to rabi crop yields have largely subsided. The second advance estimates indicate record wheat production and increased yields in key pulses compared to the previous year. A strong kharif harvest is also anticipated to contribute to a further softening of food prices.
The RBI maintains that continued moderation in inflation expectations will help maintain price stability moving forward, thereby supporting sustained economic expansion.
