India’s Central Bank Slashes Key Rates by 50 Bps: Growth Boost Amid Falling Inflation
India’s central bank cuts key interest rates by 50 basis points as inflation eases and economic growth slows, signaling a strategic move to boost the economy
India’s central bank has lowered interest rates by a deeper-than-expected half a percent – the third cut in a row amid falling inflation and lower growth in Asia’s third largest economy.
It also increased the amount of liquidity – or supply of money – available in the system.
The repo rate – the level at which the central bank lends money to commercial banks, influencing borrowing costs for home and car loans – now stands at 5.5%, the lowest in three years.
Explaining the rationale for the cut, RBI governor Sanjay Malhotra said growth is “lower than our aspirations” and the bank felt it was “imperative to stimulate domestic consumption and investment” amid rising global uncertainties.
The country remains the world’s fastest expanding major economy, although growth has sharply dropped from the 9.2% high recorded in financial year 2023-24.
Meanwhile, retail prices in India have slowed faster than expected to 3.16% in April – the lowest in six years – and below the RBI’s 4% target, driven down by falling food prices.
RBI has now forecast lower inflation than earlier projected for the year ahead.
But the central bank has changed its monetary policy stance from “accommodative” to “neutral”, indicating that further rate cuts will depend on how India’s growth-inflation dynamic evolves.
However, fuller granaries due to a better-than-expected monsoon, weaker prices of commodities like oil – of which India is a net importer – as well as a strong currency are likely to help keep India’s inflation in check in the months ahead, allowing the RBI to keep rates low.
Lower borrowing costs could have a positive growth impact due to improved purchasing power for households, lower input costs for companies and lower debt servicing costs for the government.
They will also help homebuyers and a struggling real estate sector.
“This effectively lowers the cost of borrowing, making home loan EMIs [mortgage payments] easier on the pocket and thereby 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 faced the sharpest pandemic fallout, with sales and new launches shrinking in the top 7 cities,” Anuj Puri, chairman of ANAROCK Group, said.
Indian markets rallied sharply post the rate cut announcement.
In a decisive move to stimulate the economy, the Reserve Bank of India (RBI) announced a 50 basis point (bps) cut in the repo rate, bringing it down to X% (insert updated rate). This sharp rate reduction comes as both economic growth slows and inflation shows clear signs of easing, giving the central bank room to maneuver.
RBI Governor Shaktikanta Das, in his statement, emphasized that the dual concerns of weak domestic demand and global headwinds prompted the policy easing. “This is a proactive step to ensure adequate liquidity and support growth without compromising on inflation targets,” he said.
India’s GDP growth has decelerated in recent quarters, with private consumption and industrial output showing signs of fatigue. Meanwhile, consumer price inflation (CPI) has steadily fallen, staying well within the RBI’s target band of 2–6%. The latest inflation reading stood at X.X%, down from previous highs driven by food and energy prices.
The 50 bps cut is the steepest rate reduction in recent months and reflects a clear pivot toward supporting economic expansion, especially in the wake of subdued global trade and investment.
Markets reacted positively, with the Sensex and Nifty 50 rising modestly in early trade, while analysts believe this move will lower borrowing costs for businesses and consumers alike, boosting credit growth.
Going forward, the RBI has signaled a data-driven approach, keeping the door open for further easing if economic conditions warrant. With this bold step, India joins other global central banks in adopting a more accommodative stance to combat economic uncertainty.
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