Last Updated:June 11, 2025, 11:20 IST
The RBI’s June 2025 policy — marked by surprise rate cuts and a shift to ‘neutral’ stance — signals proactive approach to supporting growth while maintaining price stability.
The RBI’s June 2025 Monetary Policy includes a surprise 50 bps repo rate cut to 5.50%, a 100 bps CRR cut, and a shift to a neutral stance.
Authored By Laukik Bagwe:
The Reserve Bank of India (RBI) has delivered a series of unexpected and decisive moves in its June 2025 Monetary Policy, marking a pivotal point in the current policy cycle.
Policy Actions: A String of Surprises
Repo Rate Cut: Yorker…
Defying market expectations of a gradual 25 basis point (bps) reduction, the RBI front-loaded a bold 50 bps repo rate cut, bringing the policy rate down to 5.50%. This move completes a cumulative 100 bps reduction since February 2025, aimed at maintaining growth momentum amid global uncertainties and benign inflation.
Stance Shift: Bouncer…
With the front-loaded rate cuts and ample liquidity, the Monetary Policy Committee (MPC) has shifted its stance from ‘accommodative’ to ‘neutral’. This signals that further policy easing will face a higher threshold, and the MPC will now adopt a more data-dependent approach, closely monitor incoming economic data and evolving global conditions to strike the right balance between growth and inflation.
CRR Cut: Sixer…
In an even bigger surprise, the RBI slashed the cash reserve ratio (CRR) by 100 bps to 3%, to be implemented in four tranches. This measure is designed to expedite monetary transmission and inject approximately Rs 2.5 lakh crore of liquidity into the banking system by year-end, supporting credit growth and lowering funding costs for banks.
Growth and Inflation Outlook
Growth:
The RBI projects real GDP growth for FY26 at 6.5% (Q1: 6.5%, Q2: 6.7%, Q3: 6.6%, Q4: 6.3%), reflecting robust domestic demand, a healthy agricultural outlook, and a revival in investment activity. While rural demand remains steady and urban demand is improving, external and industrial risks — such as global trade slowdowns and geopolitical tensions — continue to pose downside risks. The RBI remains focused on sustaining growth momentum, even as global growth and trade projections have been revised downward. Repo rate at 5.50% seems appropriate at this stage, unless growth surprises sharply to the downside.
Inflation:
The inflation outlook has improved significantly. The RBI has revised its FY26 CPI forecast down to 3.7% from 4.0%, with expectations of adequate food supply supported by record wheat and pulse production and an early, above-normal monsoon. Inflation expectations are moderating, particularly in rural areas. The RBI will remain vigilant to weather patterns and global commodity price movements, but current risks are seen as contained.
Liquidity and Credit
Liquidity:
The RBI has infused Rs 9.5 lakh crore of durable liquidity since January, and the CRR cut will add further surplus, reinforcing the transmission of policy rate cuts. The system’s credit-deposit ratio remains stable, and banks and NBFCs have strengthened their credit underwriting standards. While stress in personal loans and credit cards has moderated, microfinance stress persists, and the RBI’s liquidity push is partly aimed at reviving credit growth in sectors that have recently seen moderation.
Credit Growth:
Credit growth has slowed to single digits (9.8% as of May 2025), and the RBI’s actions are intended to provide a nudge, especially for NBFCs and personal loans. However, large industry credit, which has seen subdued growth for over a decade, will require more than just liquidity and rate cuts to revive meaningfully.
Market Implications and Forward Guidance
End of Easing Cycle:
With the current set of actions, the RBI appears to be nearing the end of its easing cycle. The MPC has limited space left for further aggressive rate cuts or liquidity injections. The new ‘neutral’ stance indicates that future policy moves will be highly data-dependent, with a higher bar for additional easing. Neutral stance means that the RBI can cut, pause and hike rates depending on the incoming data even though we don’t expect the RBI to hike anytime soon. If all things remain same – Inflation under control and no negative surprise on GDP, then terminal rate will be at 5.50% for a long time.
Bond Market:
The massive liquidity surplus is expected to support bond market performance, with the yield curve likely to remain steep. The 5-year OIS is expected to struggle to break below 5.5%, and bonds should continue to perform well in the near term given the current policy environment.
Growth Aspirations:
While the RBI is comfortable with the current 6.5% growth projection, there is a clear aspiration for higher growth (7-8%). The central bank has demonstrated its commitment to supporting growth while keeping inflation firmly under control.
The RBI’s June 2025 policy actions — marked by a surprise 50 bps repo rate cut, a 100 bps CRR cut, and a shift to a neutral stance — signal a proactive approach to supporting growth while maintaining price stability. With inflation risks receding and ample liquidity in the system, the central bank has fired its major policy bullets to sustain economic momentum. Going forward, policy decisions will be guided by evolving domestic and global conditions, with the RBI poised to act as needed to preserve macroeconomic stability.
(The author is fixed Income head at ITI Mutual Fund)
Disclaimer – The views expressed are purely personal in nature. The statements herein may include future expectations and other forward-looking statements that are based on our current views and scenarios. The information herein alone is not sufficient and shouldn’t be used for development of an investment strategy or construed as investment advice. Please consult your financial advisor before investing.
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