Mumbai, 6 June 2025: In a move that surprised many in the financial markets, the Reserve Bank of India (RBI) announced a 50 basis point cut in the repo rate while simultaneously shifting its policy stance from ‘accommodative’ to ‘neutral’. The decision reflects a recalibrated strategy that balances the need to boost domestic growth while managing external vulnerabilities. Ms. Anitha Rangan, Economist at Equirus Securities, shared her expert analysis of the MPC’s nuanced approach in its latest policy update.
Expert Commentary by Ms. Anitha Rangan, Economist, Equirus Securities:
“While giving a jumbo cut of 50 bps, RBI has shifted the stance to neutral from accommodative. It was just the previous policy that RBI changed its stance, emphasizing that the future direction would be a cut. However, in this policy, citing limited space to cut further, the RBI has reversed its earlier dovishness.”
Rangan points out that despite the aggressive rate cut, the change in stance signals caution from the central bank. The RBI seems to be acknowledging that its room to maneuver on rate policy may now be constrained due to external factors, particularly concerning the rupee and capital flows.
“However, an alternate bout of dovishness comes from the 100 basis point cut in the Cash Reserve Ratio (CRR), to be implemented in four tranches of 25 bps each over the course of the year. This will release INR 2.5 lakh crores of liquidity into the system. This measure is clearly aimed at speeding up rate cut transmission, which has so far been sluggish.”
The infusion of liquidity is being seen as a strategic tool to support credit expansion, particularly for small businesses and consumers, even as policy rates approach the lower end of the spectrum.
Balancing Act Between Domestic Growth and External Pressures
According to Rangan, the latest policy highlights the RBI’s increasing concern about external sector risks, particularly foreign exchange volatility, even as it remains committed to supporting domestic growth.
“A brake on further rate cuts suggests that the RBI is finally concerned about FX. But to keep the domestic growth engine running, it is continuing to provide a liquidity boost.”
She further explains that the policy shift may indicate that the traditional trade-off between inflation and growth has given way to a new paradigm:
“Inflation has been revised downward to 3.7% from 4%, while growth for FY26 is unchanged at 6.5%. However, it appears that the focus is no longer just about growth versus inflation—it is now about external versus internal dynamics. Frontloading is necessary for growth, but externalities are keeping further cuts at bay. The message from the RBI is clear: do what it takes now, and manage the risks later.”
Conclusion
The RBI’s latest policy action is a blend of bold monetary easing and cautious signaling. While the 50 bps repo rate cut aims to stimulate the economy, the change in stance and CRR strategy suggest a deeper balancing act between internal growth ambitions and external vulnerabilities. Ms. Rangan’s analysis highlights the complexity of the current economic environment and the evolving priorities of India’s central bank.
