Mumbai: On Friday, the Reserve Bank of India (RBI) announced a surprising cut in the repo rate by 50 basis points, aiming to boost economic growth that has dipped to a four-year low of 6.5% for FY25.

This adjustment brings the key policy rate down to 5.5%, marking the lowest level in three years, which is expected to ease the financial burden on borrowers of home, auto, and corporate loans.

Previously, the repo rate was recorded at 5.40% on August 5, 2022.

RBI Governor Sanjay Malhotra explained that the Monetary Policy Committee (MPC) made this decision after thoroughly evaluating the current macroeconomic conditions and future economic forecasts.

Since February 2025, the RBI has implemented a total reduction of 100 basis points in the policy rate, including a 25 basis point cut in April, bringing the rate to 6%.

Malhotra noted that after these rapid cuts, the monetary policy has limited options left to further stimulate growth.

This marks the first instance of the RBI executing three consecutive rate cuts since the onset of the Covid-19 pandemic in February 2020.

Despite the rate cuts, the GDP growth forecast for the current fiscal year remains unchanged at 6.5%, while the inflation estimate has been revised down to 3.7% from 4%, largely due to anticipated favorable monsoon conditions.

The MPC believes that these proactive rate cuts will significantly aid in fostering economic growth.

Additionally, the committee has shifted its stance from 'accommodative' to neutral.