New Delhi: The Reserve Bank of India (RBI) has announced a 50 basis point cut in its benchmark repo rate, bringing it down to 5.5 percent, its lowest level in three years.
The deeper-than-expected rate reduction marks the third consecutive cut this year, following similar decisions in April and February. The central bank also increased liquidity in the banking system to ensure easier access to credit across sectors.
Explaining the rationale, RBI Governor Sanjay Malhotra stated that India’s current pace of economic growth is lower than our aspirations, and stressed the need to stimulate domestic consumption and investment against the backdrop of global economic uncertainties.
Despite India maintaining its position as the world’s fastest-growing major economy, recent data show GDP growth fell to 6.5 percent in the fiscal year ending March down from a robust 9.2 percent in 2023–24.
Adding to the central bank’s confidence in easing rates, retail inflation in April cooled to 3.16 percent—a six-year low and significantly below the RBI’s 4 percent target largely due to a decline in food prices. The RBI has subsequently revised its inflation forecast downward for the coming year.
Factors such as strong agricultural output from a better-than-expected monsoon, weaker global commodity prices, and a resilient rupee are expected to support low inflation levels in the near term. Despite the aggressive rate cut, the RBI shifted its monetary policy stance from accommodative to neutral, signalling that any further action will hinge on future data regarding growth and inflation dynamics.
Indian equity markets surged following the rate cut, buoyed by expectations of lower borrowing costs and improved consumer sentiment.
The real estate sector, in particular, is likely to see continued momentum. Anuj Puri, Chairman of ANAROCK Group, remarked that, “This effectively lowers the cost of borrowing, making home loan EMIs easier on the pocket and directly improving affordability for buyers. This can potentially boost demand in the Indian real estate sector, especially in affordable and mid-income segments.”
Affordable housing, which took a major hit during the pandemic, is poised for a potential revival as lower interest rates encourage both buyers and developers to re-enter the market.
With inflation under control and domestic consumption still subdued, the latest rate cut is expected to have a stimulative effect across various sectors. However, with the RBI adopting a more cautious stance going forward, markets and businesses will be closely monitoring key economic indicators for signs of the next move.
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