RBI Cuts Repo Rate By 50 BPS Amid Falling Inflation; Check Key Insights

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Posted by : sachet | Fri Jun 06 2025

RBI Cuts Repo Rate By 50 BPS Amid Falling Inflation; Check Key Insights

The Reserve Bank of India (RBI) has reduced the repo rate by 50 basis points amid falling inflation. It is the third consecutive rate cut this year, totalling a 100 basis point reduction since February 2025. Inflation in India stays below the central bank’s target of 4%. Thus, the consensus of economists led to the decision to cut the repo rate.

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Reason Behind This Rate Cut

The Consumer Price Index (CPI) moderated to 3.2% in April, its lowest level since July 2019. Inconsistent decline in food prices resulted in this moderation. Economists say that since inflation has remained below the 4% target for three months in a row (February, March, and April), CPI must be kept permanently anchored to the 4% target for a 12-month horizon. Under the flexible inflation targeting (FIT) policy, the RBI is required to maintain the CPI at 4% with a +/-2% band. As per RBI’s annual report 2024-25, “benign inflation scenario and moderate growth warrant monetary policy to be growth oriented, but keep watch on the rapidly evolving global macroeconomic situation with caution.”

RBI MPC Decision: Key Highlights

CPI inflation for FY25- 26 is projected at 3.7%, revised downward from 4.0% in the MPC meeting in April. Here are the quarterly projections.

Q1: 2.9%
Q2: 3.4%
Q3: 3.9%
Q4: 4.4%

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