life-after-the-big-rate-cut

The Reserve Bank of India’s (RBI) announcement on Friday to cut key policy rate by 50 basis points to boost growth has been hailed by the industry, businesses, as well as housing project developers.

In all, RBI has now cut interest rate by a total of 100 basis points in 2025, starting with a quarter-point reduction in February – the first cut since May 2020 – and another similar-sized cut in April. With this, the repo rate has now come down to 5.5 per cent, the lowest in the last three years.

After the rate-cut announcement, the bank’s Governor, Sanjay Malhotra, warned that there is very little scope for rate cut in the current circumstances after the latest Monetary Policy Committee (MPC) decision. All future monetary policy actions will depend upon incoming data, he added.

“There is now very limited space for the monetary policy, actually, given the current circumstances...growth (projection) is about 6.5 per cent, inflation, we are projecting at 3.7 per cent for this year and above 4 per cent for the next year...if these were to play out, there is very limited space,” he said.

Stressing that rate cut will have positive effect on growth, he said, the impact will be seen only in the latter half of FY26. 
Inflation, which is usually in danger of increasing following rate cuts by banks, is however, not a cause of concern for Malhotra who said it can be assumed that RBI has won the fight against price rise.

The RBI has also slashed inflation forecast for the current fiscal to 3.7 per cent from the earlier estimate of 4 per cent in April, as it expects core inflation to remain benign with the easing of international commodity prices.

The bank would remain watchful of weather-related uncertainties and still evolving tariff-related concerns with their attendant impact on global commodity prices, he added.

RBI decided to slash Cash Reserve Ratio (CRR) by a huge 100 bps, which will unlock Rs 2.5 lakh crore liquidity by December to the banking system for lending to productive sectors of the economy.

With the reduction in four equal tranches ending November 29, 2025, the CRR would come down to 3 per cent. This means that commercial banks would have to maintain a lower level of 3 per cent in cash with the RBI allowing them to have higher funds for lending. 

 

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Realtors’ apex body CREDAI welcomed the RBI decision to cut repo rate by 50 basis points as a “bold step” and said this will help boost sales of residential properties, sales of which had declined across 7-8 major cities in the January-March quarter compared to the year-ago period.

CREDAI President Shekhar G Patel said the RBI decision will improve consumers’ sentiment, immensely benefitting mid-income and affordable housing segments, which have been struggling in the last few years.

“Lower lending rates will directly enhance home loan affordability, particularly in interest-sensitive categories like mid-income and affordable housing. Reduced EMIs are expected to significantly improve buyer sentiment and encourage first-time homebuyers to enter the market,” Patel said.

In response to the 50-bps cut in the policy repo rate since February 2025, most of the banks had reduced their repo-linked external benchmark-based lending rates (EBLRs) and the marginal cost of funds-based lending rate (MCLR), according to an assessment by the RBI.

A lowering of the repo rate leads reduction in lending rates by banks, which, in turn, brings down EMIs for retail and corporate borrowers.

On being asked if there are plans to increase foreign ownership beyond 15 per cent in a single banking institution at present, the RBI Governor categorically denied any such move, although Malhotra hinted that the RBI may look at allowing higher foreign ownership of banks in the future.

A growing economy like India needs more banks, he said, but was quick to add that we need owners and managers who are trustworthy.

It can be noted that usually, the RBI allows a single foreign institution to hold 15 per cent in a lender and has made some exceptions like that of CSB Bank, where Canada-based investor Fairfax has been allowed to own 51 per cent and recently, it allowed Japan’s SMBC to own 20 per cent of Yes Bank.

“We have also said that we want to re-look at ownership structure and eligibility conditions under which non-residents, who are at 15 per cent, we are examining at present. It will not happen immediately, it will take time,” he said, stressing that whatever is best for the economy will be taken on board.

Expressing concern about crypto currencies, Malhotra said they can hamper financial stability. He was replying to a question during a media interaction about the developments in the backdrop of the Supreme Court’s observation on crypto currency last month.

“There is no new development as far as crypto is concerned. A committee of the government is looking after this. Of course, as you are aware, we are concerned about crypto because that can hamper financial stability and monetary policy,” he said.

The apex court had asked the Centre to formulate a “clear cut” policy on regulating crypto currency, while underlining its impact on the economy. An SC bench termed the Bitcoin trade as an illicit trade, more or less like “hawala” business.
India is currently working on a discussion paper for crypto currencies and an inter-ministerial group (IMG), comprising officials from RBI, Sebi and finance ministry, is looking into global norms.

In absence of any regulation, crypto currency is not yet illegal in India. 

It may be noted that, on March 4, 2021, the Supreme Court had set aside an RBI circular of April 6, 2018, prohibiting banks and entities regulated by it from providing services in relation to virtual currencies.