RBI Lowers Repo Rate to Support Growth – June 2025
Context:
In its latest Monetary Policy Committee (MPC) meeting held in June 2025, the Reserve Bank of India (RBI) reduced the repo rate by 25 basis points (bps) from 6.50% to 6.25%.
This marks the first rate cut since early 2023 and reflects a shift in policy stance to address the challenges of slowing GDP growth and global deflationary pressures.
Updated Key Rates (as of June 2025)
| Policy Tool | Rate (%) |
|---|---|
| Repo Rate | 6.25 |
| Reverse Repo Rate | 6.00 |
| Bank Rate | 6.50 |
| MSF Rate | 6.50 |
| CRR (Cash Reserve Ratio) | 4.5 |
| SLR (Statutory Liquidity Ratio) | 18.0 |
Why Did RBI Lower the Repo Rate?
1. To Boost Growth
India’s GDP growth forecast was revised from 7.2% to 6.8% for FY2025–26 due to:
Weak export demand
Sluggish private investment
Geopolitical tensions in West Asia
2. Moderating Inflation
CPI inflation cooled to 4.2% (within RBI’s tolerance band of 2–6%)
Core inflation shows signs of structural decline
3. Global Rate Easing Trend
US Fed and ECB are signaling rate cuts in H2 2025
RBI aligns its policy for global investor confidence and FPI inflow
4. Liquidity Management
Surplus liquidity in the banking system offers room for easing without stoking inflation
What is the Repo Rate?
The Repo Rate is the rate at which the RBI lends money to commercial banks against government securities.
It’s the primary tool of monetary policy used to control inflation and ensure liquidity.
Implications of Rate Cut
| Sector | Impact |
|---|---|
| Banks | Cheaper borrowing → potential reduction in lending rates (MCLR) |
| Consumers | Lower EMIs on home, car, and education loans |
| Real Estate & Auto | Likely boost due to higher credit demand |
| Corporate Sector | Improved access to working capital and investment credit |
| Bond Market | Positive momentum, lower yields on government bonds |
UPSC GS3 Relevance
Indian Economy:
Monetary policy and macroeconomic stabilization
RBI autonomy vs fiscal needs
Credit flow to MSMEs & agriculture
Growth vs Inflation Trade-Off:
This decision reflects RBI’s “accommodative” stance to support reviving growth while ensuring inflation stays under control.
Prelims Tidbits:
| Concept | Explanation |
|---|---|
| MPC | 6-member committee chaired by RBI Governor |
| Inflation Targeting Framework | Introduced via 2016 amendment to RBI Act |
| Neutral Stance | RBI can move rate either way based on data |
| Accommodative Stance | RBI leans toward rate cuts to boost growth |
Mains/Essay Angle
Quote Use:
“Monetary policy is the art of choosing between inflation and unemployment, with incomplete information.” – Raghuram Rajan
Can be linked to essays on:
India’s economic resilience
Monetary-fiscal coordination
RBI’s role in inclusive recovery