RBI cuts repo rate by 50bps; here's what key economists say

Reserve Bank of India, in its latest Monetary Police Committee meeting, announced policy rate cut by 50 basis points, reducing the repo rate to 5.5%. The Central bank has also reduced the Cash Reserve Ratio (CRR) by 100 basis points, now standing at 3%. Another major announcement made by the MPC members is the change of RBI's stance from 'accommodative' to 'neutral'.

Here's what key economists have to say about it:

"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," states Ranen Banerjee, Partner and Leader, Economic Advisory, PwC India.

“The decision is likely owing to the GDP prints for Q4 of FY25 reflecting weakness in manufacturing and consumption, as well as the adverse impacts of global trade and conflict headwinds...This is significantly positive for urban consumption, which printed weak in past quarters, and will also likely add a fillip to real estate, discretionary purchases, and private capex.” said Banerjee.

“The RBI’s bold 50 basis point cut in the policy repo rate, bringing it down to 5.5%, has surprised markets and underscores a clear pivot towards supporting growth amid subdued economic momentum and easing inflation," said Rahul Goswami, CIO & MD, India Fixed Income, Franklin Templeton, on the RBI MPC outcome.

Goswami also said that the central bank has frontloaded its easing cycle with a cumulative 100 bps cut over just four months.

Radhika Rao, Executive Director and Senior Economist at DBS Bank, said, “The MPC surprised markets by frontloading policy easing measures, with the strong liquidity impetus in the run-up already adding a de facto rate reduction, in addition to the 50bp cut in the benchmark rate. The policy committee provided a double-barrelled boost by undertaking a 50bp rate cut as well as a durable liquidity infusion via the CRR cut, tapping into the window of below-target inflation this quarter...With our forecast of the terminal rate being met, further rate reductions are likely if the growth momentum weakens anew.”

The RBI MPC decision to reduce the policy repo rate by 50 basis points (bps) to 5.5% will support India’s growth amidst continued global volatilities is highly appreciable, said Mr. Hemant Jain, President of PHDCCI.

"Going forward, India will continue to grow resiliently and robustly, supported by strong macroeconomic fundamentals and price, financial and political stability. Geopolitical tensions and global trade uncertainties pose downside risks," said Mr Jain.

Upasna Bhardwaj, Chief Economist, 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 dependant given the significant global uncertainties. Furthermore, the sharp drop in CRR is likely to keep liquidity conditions suitably comfortable to ensure monetary transmission.”

"The RBI appears to have front-loaded all policy actions, be it higher-than-expected rate cuts or infusing durable, albeit staggered, liquidity via lower CRRs," said Madhavi Arora, Chief Economist, Amkay Global Services.

All of that now implies that the ball is in the banks' court to transmit easier financial conditions faster, added Arora.

Mr. Venkatram Mamillapalle, CEO & Managing Director, Renault India sais, "The Reserve Bank of India’s decision to reduce the repo rate by 50 basis points to 5.5%, marking a cumulative 100 bps cut in recent months (25bps cut in Feb 2025, followed by 25bps in April 2025 and 50 bps in June ), is a welcome and timely move."

Mamillapalle also said, "Combined with a significant 100 bps reduction in the Cash Reserve Ratio (CRR), which releases ₹2.5 lakh crore into the banking system, this policy is expected to strengthen liquidity and accelerate the transmission of lower interest rates to consumers, which will spur demand in the economy. For the automotive sector, this translates directly into improved access to affordable vehicle financing, especially in the entry and mid-level segments."

The reduction in CPI inflation forecast to 3.7% for FY26 will likely increase real disposable income, supporting consumer sentiment. With private consumption already on a healthy trajectory and the festive season on the horizon, we expect this policy environment to drive demand further. Moreover, robust gross FDI despite global headwinds reaffirms India’s attractiveness as a long-term investment destination, added CEO Renault.

"The RBI’s proactive measures are poised to spur automotive retail, enhance customer affordability, and strengthen the economic cycle. We are optimistic that FY2025-26 will see an upward growth trajectory for the auto industry, powered by favorable macroeconomic indicators, strong fundamentals, and evolving consumer confidence," said Mamillapalle.