In a major boost to the Indian banking and financial sector, the Reserve Bank of India (RBI) on Friday announced a surprise 50 basis points (bps) cut in the repo rate, bringing it down to 5.5%, along with a phased 100 bps reduction in the Cash Reserve Ratio (CRR). The move, announced by RBI Governor Sanjay Malhotra, marks the third consecutive repo rate cut in 2025.
Market Reaction: Nifty Bank Hits Record High
Following the announcement, the Nifty Bank index surged by 688.50 points (1.23%), touching a record high of 56,515.80 as of 11:10 AM. The rally was led by financial stocks, which are expected to benefit directly from improved liquidity and lower funding costs.
Key Monetary Policy Highlights:
- Repo Rate:
- Reduced by 50 bps to 5.5%
- Third cut this year; total repo rate cut in 2025 now at 100 bps
- CRR Reduction:
- Cut by 100 bps from 4% to 3%
- To be implemented in four tranches of 25 bps each starting:
- September 6, 2025
- October 4, 2025
- November 1, 2025
- November 29, 2025
- Expected to inject ₹2.5 lakh crore into the banking system
What is CRR and Why it Matters?
The Cash Reserve Ratio (CRR) is the percentage of a bank’s total deposits that must be maintained with the RBI. By reducing CRR, the central bank frees up capital for banks, allowing them to lend more aggressively and boost economic activity. It also lowers the cost of funds for banks, improving monetary transmission.
“The cut in CRR will release primary liquidity of about ₹2.5 lakh crore into the banking system by November 2025 and help in accelerating the monetary transmission to the credit market,” – RBI Governor Sanjay Malhotra.
GDP Growth Outlook Unchanged
Despite the rate cuts, the RBI maintained its GDP growth projections for FY2025-26:
- Q1: 6.5%
- Q2: 6.7%
- Q3: 6.6%
- Q4: 6.3%
This indicates the central bank is prioritizing growth while ensuring inflation remains in check.
Expert Takeaway
The dual approach of rate cuts and CRR reduction signals the RBI’s strong commitment to reviving credit growth and boosting economic momentum. Analysts expect a positive ripple effect across sectors, especially banking, housing, infrastructure, and MSMEs.
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