The Reserve Bank of India (RBI) cut its key lending rate, called the repo rate, by 50 basis points. This means the new repo rate is 5.5%, down from 6%. The announcement was made by RBI Governor Sanjay Malhotra during the Monetary Policy Committee (MPC) meeting.

This cut was larger than what most people expected. With this latest cut, the RBI has now lowered the repo rate by 100 basis points since its policy review in February 2025.

For those unfamiliar, the repo rate is the interest rate at which the RBI lends money to banks. When this rate goes down, banks may lower their own interest rates, which means customers could pay less when taking loans.

Even though the rate cut is good news for borrowers, Governor Malhotra warned that there isn’t much room left for further support for growth. So, the RBI has now changed its approach from being ‘accommodative’ to ‘neutral’. This means the central bank may not cut rates again soon unless it’s really needed.

“Amidst heightened volatility in capital flows and exchange rates, coupled with constrained policy space, central banks of emerging market economies have a tougher task to stabilize their economies against global spillovers in this global milieu. The Indian economy presents a picture of strength, stability, and opportunity,” said RBI Governor Sanjay Malhotra.

The RBI decision comes as India’s economy shows positive signs. In the last three months of the 2024-25 financial year, India’s GDP grew by 7.4%. For the full year, the government expects growth to be around 6.5%.

Meanwhile, the world economy is facing pressure from new tariffs announced by US President Donald Trump. These trade taxes are affecting global business, and even the International Monetary Fund (IMF) has lowered its growth forecast.

However, experts think India may not be affected too much. In fact, India and the US are working on a bilateral trade deal to help both countries. The first phase of this deal may be ready by July 9, before the US tariffs come into effect.

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