The Reserve Bank of India (RBI) reduced its key repo rate by 50 basis points, bringing it down to 5.50%, as announced by RBI Governor Sanjay Malhotra on Friday. This decision followed the latest Monetary Policy Committee (MPC) meeting.

This rate cut was larger than expected and marked the third straight reduction in 2025. The move signaled the central bank’s shift in focus from inflation control to stimulating economic growth, especially as inflation has remained low in recent months.

RBI Cuts Rates for the Third Time in 2025

So far in 2025, the RBI has reduced interest rates by 100 basis points in total. It started with a 25 basis point cut in February, which was the first since May 2020. Later in April, it made another 25 basis point reduction, followed by the latest 50 basis point cut in June.

Inflation Drops Sharply, Creating Room for Easing

Explaining the decision, Malhotra said, “Inflation has softened significantly,” and noted that price levels are “aligning with the central bank's target of 4%.” He added that core inflation—which excludes food and fuel prices—is also expected to stay low.

Retail inflation fell faster than anticipated in recent months. In April, it dropped to 3.16%, which is close to a six-year low and well below the RBI’s medium-term target.

Economic Growth Remains Strong

Despite lower inflation, the Indian economy continues to expand rapidly. Malhotra said, “India is already growing at a fast pace but aspires to grow at a higher pace.” In fact, GDP surged by 7.4% in the January-March quarter, showing the economy's resilience.

RBI Maintains Growth Forecast

The central bank kept its growth outlook unchanged for the financial year 2025-26. According to Malhotra, “Real GDP growth rate for this year 2025-2026, is projected at 6.5%, continuing with our earlier forecast.” He added quarterly forecasts:

• Q1: 6.5%

• Q2: 6.7%

• Q3: 6.6%

• Q4: 6.4%

He also emphasized, “The risks are evenly balanced,” suggesting there is no strong upward or downward pressure on the economy. The RBI’s bigger-than-expected rate cut reflects its confidence in stable inflation and its aim to boost growth even further. While India’s economy is performing well, the central bank clearly wants to accelerate momentum in the coming quarters.