New Delhi [India], June 6 : Economists across the board have welcomed the Reserve Bank of India's (RBI) latest policy decision, terming the 50 basis points (bps) repo rate cut as a pro-growth move that is expected to significantly boost liquidity and economic activity in the country.
On Friday, RBI Governor Sanjay Malhotra announced the decision of the Monetary Policy Committee (MPC), stating that the policy repo rate has been reduced from 6 per cent to 5.5 per cent.
This larger-than-expected cut in the repo rate was accompanied by a 100 bps cut in the Cash Reserve Ratio (CRR), now reduced to 3 per cent, aimed at enhancing liquidity by Rs 2.5 lakh crore.
Reacting to the development, Sonal Badhan, Economics Specialist at Bank of Baroda, toldthat the policy is strongly pro-growth.
"RBI has announced a very pro-growth policy by announcing a 50bps repo rate cut. This along with 100 bps cut in CRR will provide significant boost to liquidity and lead to faster transmission of rate cuts," she said.
However, Badhan also noted a cautious tone in RBI's outlook.
"As the stance has been changed to neutral and the policy signals that there remains limited room for monetary policy to support growth, we expect status quo by RBI in the next 2-3 meetings. The decision will be data dependent. More rate cuts will be expected if there is significant downside seen to growth," she added.
Debopam Chaudhuri, Chief Economist at Piramal Group, said the RBI's move was in line with their expectations.
"While we were among the few institutions anticipating a 50 bps rate cut, it is highly encouraging to see MPC members aligning with this view, united by the objective of revitalizing India's domestic economic growth," he told ANI.
Chaudhuri pointed out that the February rate cut had limited impact due to tight liquidity.
"The additional 25 bps cut now helps offset that earlier lag in impact," he said, adding that another 50 bps cut may follow in FY26, possibly bringing the terminal repo rate down to 5 per cent.
He also expects a moderation in the RBI's liquidity operations via Variable Rate Repos (VRRs) and Open Market Operations (OMOs) as the CRR cut ensures sufficient liquidity.
Sujan Hajra, Chief Economist and Executive Director at Anand Rathi, said the rate and CRR cuts exceeded both market and institutional expectations.
"This frontloading of monetary easing reflects a clear intent to support growth while inflation remains benign," Hajra said.
However, Hajra cautioned about the shift in policy stance.
"Although this change from 'accommodative' to 'neutral' might be read as a signal that the rate cut cycle is nearing its end, we believe it is aimed at tempering any potential 'irrational exuberance' in the financial markets," he added.
With inflation currently under control, the RBI's bold policy shift has boosted market confidence and underlined its commitment to supporting economic growth while maintaining macroeconomic stability.
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