RBI cuts interest rates by 50 bps

New Delhi, Jun 6 (PTI) The RBI's decision to slash the benchmark rate by a "bold" 50 basis points will lead to lower interest rates and improved credit access for borrowers, India Inc said on Friday, asserting that the move will support economic growth amid global headwinds.

However, they opined that by reverting its stance to neutral from accommodative, the central bank has signalled that it may now pause to assess the full transmission of these cuts, before considering further easing of interest rates.

The Reserve Bank of India (RBI) on Friday cut interest rates by 50 basis points (bps), the third consecutive reduction, to 5.5 per cent.

The central bank has also unexpectedly reduced the cash reserve ratio (CRR) for banks by a steep 100 basis points, which will unlock Rs 2.5 lakh crore liquidity to the banking system for lending to productive sectors of the economy.

Harsha Vardhan Agarwal, President at FICCI, said, "FICCI welcomes RBI's bold and proactive move to slash the repo rate.

"This front-loaded rate cut sends a strong signal of the RBI's commitment to supporting growth, especially at a time when the Indian economy is navigating multiple headwinds -- from trade uncertainties and geopolitical tensions to financial market volatility," Agarwal added.

George Alexander Muthoot, MD of Muthoot Finance, said, "For NBFCs, this is an encouraging move as it creates a favourable environment by lowering borrowing costs and extending affordable credit to under-served communities.” “The move, coupled with a lowered inflation outlook, is likely to support domestic consumption and stimulate credit demand in the coming quarters. Overall, we view this as a timely and positive intervention that can support a stronger credit cycle in FY26," Muthoot added.

Ranen Banerjee, Partner and Leader - Economic Advisory at PwC India, said the policy rate easing, combined with the liquidity increase for banks when system liquidity is already comfortable, is likely to add a second engine to the consumption growth flight that is anticipated to be already in flight from the income tax cuts taking effect in FY26.

"With inflation under control, supporting growth is the main objective, especially considering the uncertainty in global trade. The RBI continues to peg FY26 growth at 6.5 per cent, but clearly sees a need to stimulate private demand and capital formation. This (liquidity) gives banks more headroom to transmit lower rates and improve credit flow — both to consumers and businesses," Vijay Kuppa, CEO of InCred Money, said.

Rahul Goswami, CIO & MD - India Fixed Income at Franklin Templeton, said the RBI's bold move has surprised markets and underscores a clear pivot towards supporting growth amid subdued economic momentum and easing inflation.”

Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said, "The higher-than-expected repo rate cut comes along with a shift in the stance back to neutral. This clearly points towards future decisions being more data-dependent, given the significant global uncertainties.”

Gaura Sengupta - Chief Economist at IDFC FIRST Bank, said, "The front-loading of the rate cut action plus CRR cut indicates focus is on enhancing the transmission of monetary policy. The neutral stance indicates that the bar for further rate cut is higher but isn't completely off the table. In the next few policies, we expect the RBI to remain on pause".

The RBI MPC decision will support India's growth amidst continued global volatilities, Hemant Jain, President at PHDCCI, said.

With the latest reduction, the RBI has cut interest rates by 100 basis points in 2025, starting with a quarter-point reduction in February - the first cut since May 2020 - and another similar-sized cut in April.

The rate cut comes as the Indian economy slowed to a four-year low of 6.5 per cent in the fiscal year that ended March. RBI projected the economy to grow by the same measure in the current financial year that started on April 1, as rising trade tensions following US President Donald Trump's tariff policies provide headwind.

The central bank lowered its inflation projection to 3.7 per cent for 2025-26 from 4 per cent earlier.