RBI MPC unleashes double-barrelled easing with repo rate and CRR cuts

In a step set to reinforce liquidity and stimulate credit flow across productive sectors, the Reserve Bank of India (RBI) on Friday, 6 June, announced a 100-basis points reduction in the Cash Reserve Ratio (CRR), to be implemented in four tranches. This phased reduction will bring the CRR down from 4 per cent to 3 per cent by end-November 2025, unlocking an estimated Rs 2.5 lakh crore in systemic liquidity by December.

Announcing the bi-monthly monetary policy review, RBI Governor Sanjay Malhotra said, “The Reserve Bank remains committed to ensuring adequate liquidity in the system. The phased reduction in CRR will provide durable liquidity, reduce banks’ cost of funds, and enhance monetary policy transmission.” The four 25-basis-point tranches will take effect from 6 September, 4 October, 1 November, and 29 November 2025, respectively.

This liquidity infusion builds on the December 2024 CRR cut of 50 basis points, which released Rs 1.16 lakh crore into the system. Despite the significant shift in CRR policy, the Statutory Liquidity Ratio (SLR) has been retained at 18 per cent.

The RBI clarified that systemic liquidity has already improved substantially, with Rs 9.5 lakh crore injected into the banking system since January 2025. As a result, liquidity has moved into surplus since March, reflected in a stable Weighted Average Call Rate (WACR) and subdued participation in Variable Rate Repo (VRR) auctions.

In a complementary move, the RBI also lowered the policy repo rate by 50 basis points to 5.5 per cent, shifting its stance from ‘accommodative’ to ‘neutral’. This combination of measures reinforces the central bank’s pro-growth posture while keeping inflation within manageable limits.

The CPI inflation forecast for FY2025–26 has been revised downward from 4.0 per cent to 3.7 per cent, with real GDP growth expected at 6.5 per cent, supported by private consumption and capital formation.

Experts believe the dual approach—lower rates and increased liquidity—could create a more conducive environment for private investment. According to D.K. Srivastava, chief policy advisor at EY India, India’s recent growth has been powered largely by public capital expenditure.

“A more balanced profile of growth drivers would call for a tangible pickup in private investment demand,” he said, adding that the current monetary stance could help bring India’s potential growth closer to 7 per cent over the next few years.

Gaura Sengupta, chief economist at IDFC FIRST Bank, underscored the significance of the RBI’s approach. “The frontloading of both rate and CRR cuts underscores the RBI’s intent to accelerate transmission. While the neutral stance raises the bar for further cuts, it doesn't eliminate the possibility.”

She also noted that the liquidity created by the CRR cut would help maintain system liquidity above 1 per cent of net demand and time liabilities (NDTL) till March 2026, reducing the need for open market operations.

From a consumer finance perspective, Kunal Varma, Co-founder and CEO of Freo, said the move would offer relief to borrowers through lower EMIs on floating-rate home, auto, and personal loans.

However, he cautioned that depositors may want to lock in fixed deposit rates before they decline further. “It’s a signal that the RBI is trying to support growth while still being mindful of inflation and financial stability,” he said.

In sectors like healthcare, where financing remains underpenetrated, the policy stability brought by the RBI has helped NBFCs and fintech lenders expand their offerings. Sahil Lakshmanan, Chief Business Officer at CarePal Money, noted that consistent liquidity support and stable capital costs are vital to expanding access to medical loans, particularly in Tier II and Tier III cities. “The RBI’s cautious stance, supported by moderating inflation and resilient GDP growth, creates a stable environment for lending marketplaces like ours to scale impact where financing needs are most acute,” he said.

For housing finance, the rate cut is already seen as a significant enabler. Pramod Kathuria, Founder and CEO of Easiloan, estimated that a 50-bps cut in the repo rate could reduce EMIs by over Rs 1,500 per month on a Rs 50 lakh, 20-year home loan. “This incentivises new borrowers and gives existing ones a chance to reassess their repayment strategy,” he said, advising homeowners to consider locking in rates or prepaying part of their loan.

Commenting on the overall direction of monetary policy, Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said the larger-than-expected repo rate cut, along with the CRR reduction, indicated a clear intent to support monetary transmission. “The shift to a neutral stance suggests that further moves will be data dependent, particularly amid significant global uncertainties,” she added.

While India’s GDP growth of 6.5 per cent in FY2024–25 marked a four-year low, the RBI’s latest measures are designed to arrest this slowdown. The central bank is clearly banking on the twin levers of reduced cost of capital and enhanced liquidity to spur credit uptake, particularly in housing, infrastructure, and manufacturing. However, given that monetary transmission often operates with a lag, the full impact may not be visible until the second half of FY26.

The coming months will be a litmus test for how effectively banks channel this liquidity into productive sectors and how quickly investment sentiment responds. The RBI’s calibrated balancing act—supporting growth while anchoring inflation expectations—continues to guide its monetary strategy.