On April 9, 2025, the Reserve Bank of India (RBI) announced a 25 basis points (bps) cut in its key policy rate, reducing the repo rate from 6.25% to 6%. Simultaneously, the central bank changed its monetary policy stance from ‘neutral’ to ‘accommodative’. This marks the second consecutive rate cut by the RBI this year, following an earlier 25 bps reduction in February 2025, which was the first rate cut since May 2020.
Key Highlights of the RBI’s Decision
The RBI’s Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, made the decision unanimously, with all six members voting for both the rate cut and the change in stance Reuters. The central bank also revised its growth forecast for FY 2025-26 downward from 6.7% to 6.5%, while adjusting its inflation projection from 4.2% to 4% Reuters.
The change in stance from ‘neutral’ to ‘accommodative’ is particularly significant as it signals that the RBI is now considering only two options going forward: maintaining the status quo or implementing further rate cuts Economic Times.
Why Experts Consider This a Timely Move
1. Response to Global Trade Uncertainties
Experts widely view the RBI’s decision as a timely response to mounting global uncertainties, particularly the impact of U.S. tariffs on Indian exports. SBI Chairman C S Setty described it as a “swift, timely move and a forward guidance to the market” in light of dynamic global trade conditions Economic Times.
Anirudh Garg, Partner and Fund Manager at InvAsset, noted: “The U.S. tariff escalations, weaker dollar and volatile crude prices pose potential risks to India’s exports and imported inflation. Yet, the RBI believes the domestic economy is well-positioned to weather these shocks” Reuters.
2. Preemptive Measure to Support Growth
The decision is considered timely as it proactively addresses growth concerns before they become more severe. Samantak Das, Chief Economist at JLL India, called it “a clear vote of confidence in India’s economic resilience, aiming to reignite consumption, investment, and improve consumer sentiment in a challenging global landscape” Reuters.
The RBI itself stated in its committee statement, “In such challenging global economic conditions, the benign inflation and moderate growth outlook demands that the MPC continues to support growth” Reuters.
3. Strategic Timing Amid Tariff Implementation
The rate cut’s announcement coincided with the implementation of new U.S. tariffs, which many experts see as deliberate timing to cushion potential negative impacts. The tariffs have raised the risk of a global slowdown and a U.S. recession while sparking financial turmoil, putting pressure on emerging market central banks Reuters.
4. Alignment with Inflation Control
Experts note that the timing is appropriate given the current inflation scenario. Kunal Kundu, India Economist at Societe Generale, observed: “With inflation expected to be on the lower side, coupled with the fact that the trade war will prove to be deflationary outside the U.S., we feel that the stage is set for deeper rate cuts by the RBI going forward” Reuters.
Impact on Various Sectors
1. Housing and Real Estate
The rate cut is expected to have a transformative impact on the property sector. Home loan rates, currently between 8.10% and 8.35%, are expected to fall below 8% Economic Times.
For borrowers with floating-rate home loans, this means substantial reductions in EMIs. For example, a borrower with a loan amount of Rs 50 lakh could see a monthly EMI saving of Rs 1,960, resulting in total savings of Rs 4.70 lakh over a 20-year tenure Economic Times.
2. MSMEs and Manufacturing
The MSME sector stands to benefit significantly from the rate cut and accommodative stance. Rajan Luthra, CFO of Action Construction Equipment (ACE) Ltd, remarked: “The RBI’s decision to cut the repo rate by 25 basis points to 6% is a strategic and timely intervention amidst global uncertainties. We believe this rate will lower borrowing costs, and hence, will prove to be a significant catalyst in enhancing manufacturers’ ability to invest in capacity expansion, R&D, and technological upgrades under the ‘Make in India’ initiative” Manufacturing Today India.
The reduced borrowing costs are expected to accelerate project execution, boost employment, and enhance overall productivity in the MSME sector.
3. Banking Sector
Interestingly, despite the rate cut being generally positive for economic growth, banking stocks declined by up to 4% following the announcement. Analysts attribute this to concerns over near-term margin pressure and slower benefit transmission Economic Times.
Public sector banks were among the biggest losers, with Bank of India, Union Bank of India, Indian Bank, and Bank of Baroda dropping nearly 4%. Private banks like Bandhan Bank, RBL Bank, YES Bank, and ICICI Bank saw declines between 1% and 3.5% Economic Times.
4. NBFCs, Particularly Gold Loan Companies
Shares of gold loan providers fell sharply after the RBI Governor announced plans to issue comprehensive guidelines on gold loans. Muthoot Finance and IIFL Finance declined as much as 5% Economic Times.
Future Outlook: Expectations for Additional Rate Cuts
Experts broadly anticipate further rate cuts in the coming months:
- Sakshi Gupta, Principal Economist at HDFC Bank, expects two more rate cuts, with the next one as soon as the June policy meeting Reuters.
- Aditi Nayar, Chief Economist at ICRA, projects an additional 50 bps of rate cuts over the next three policy reviews Reuters.
- Garima Kapoor, Economist at Elara Securities, anticipates another 75 bps rate cut in FY26 Reuters.
- Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, sees scope for additional 75-100 bps of rate cuts in the year ahead, depending on the scale of global slowdown Reuters.
What the Accommodative Stance Means
The shift from a ‘neutral’ to an ‘accommodative’ stance signifies that the central bank is employing an easy monetary policy aimed at stimulating economic growth through lower interest rates Economic Times.
Mandar Pitale, head of treasury at SBM Bank India, explained: “An accommodative stance entails easy monetary policy that is geared towards stimulating the economy through softer interest rates” Economic Times.
This stance limits the RBI’s future options to either maintaining rates or cutting them further, effectively ruling out rate hikes in the near term unless extraordinary circumstances arise.
Conclusion
The RBI’s decision to cut rates by 25 bps and shift to an accommodative stance is widely regarded by experts as a timely and strategic move to address both global uncertainties and domestic growth concerns. While the immediate impact varies across sectors—positive for borrowers and MSMEs but challenging for banks—the overall direction is expected to support economic resilience and growth in a challenging global environment.
As Sujan Hajra, Chief Economist at Anand Rathi Group, summarized: “The policy demonstrates a cautious but supportive posture on both growth and inflation. The overall tone is market-friendly and should be viewed as positive for both equity and debt markets” Reuters.
With additional rate cuts widely expected throughout 2025, the RBI appears committed to a growth-supportive monetary policy path as India navigates global economic headwinds.
