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RBI’s 50 bps repo rate cut: In a policy announcement that came as a surprise for everyone, RBI Governor Sanjay Malhotra on Friday announced a sharp 50 basis point cut in the repo rate slashing it from 6 per cent to 5.5 per cent and a 100 bps reduction in the Cash Reserve Ratio (CRR), phased over four tranches starting September. Together, these moves are expected to inject Rs 2.5 lakh crore into the banking system, easing liquidity and nudging credit flow.

While the stock market immediately responded with optimism  the Sensex and Nifty gained over 0.6 per cent each, and Nifty Bank rallied 1.2 per cent economists and market experts had mixed reactions, especially after the central bank shifted its monetary stance from accommodative to neutral, signaling that more rate cuts may not be on the table unless the situation demands.

According to Malhotra, the inflation outlook has improved significantly, giving us room to support growth more aggressively, adding that inflation has fallen to 3.2 per cent, well below the RBI’s lower tolerance band. The central bank also revised its inflation projection for FY26 downward  from 4 per cent to 3.7 per cent.

However, the governor cautioned that with a cumulative 100 bps cut in the repo rate since February 2025, “the space for further monetary support is now limited”. The policy shift to neutral indicates that future rate decisions will be more data-driven and balanced between growth and inflation objectives.

Also Read:RBI bi-monthly MPC review: Repo rate cut by 50 bps to 5.5%; stance changed to 'neutral'  

Equity markets reacted positively to the surprise rate cut. The Sensex rose by over 500 points, while the Nifty gained more than 160 points. The banking sector led the rally, with the Nifty Bank index up by over 680 points.

Bajaj Finance, Axis Bank, Maruti Suzuki, Kotak Mahindra Bank and IndusInd Bank were among the top gainers, while Sun Pharma and Infosys were among the laggards.

A repo rate cut typically brings down interest rates on loans and EMIs, making borrowing cheaper for consumers and businesses. However, the impact will depend on how quickly and effectively banks transmit the lower rates to end-users.

Rahul Singla, Director of Mapsko Group, welcomed the move and said it would “improve home loan affordability” and “boost buyer sentiment”, especially in the affordable housing segment. “We urge lending institutions to pass on the benefits promptly,” he added.

Also Read:Rate-sensitive stocks rally after RBI’s 50 bps repo cut; banking, realty, auto gains over 2% 

According to Anitha Rangan, Economist at Equirus Securities, this 50bps repo rate cut will speed up the rate cut transmission, which is currently slow, taking around 8-9 months.

"A brake on further rate cuts suggests that RBI is finally concerned about FX but to keep domestic growth engine running, continuing to give liquidity boost. Inflation has been revised downward to 3.7 per cent from 4 per cent while growth for FY26 is unchanged at 6.5 per cent," she said

"It is no longer about growth-inflation – it is about external versus internal. Front loading is necessary for growth but externalities is keeping further cuts away. Do what is takes now – risks will be managed down the road," she added.

Financial experts said the RBI’s actions indicate an aggressive, front-loaded push to revive the economy  even as the central bank signals it may now wait and watch.

Naveen Kulkarni, Chief Investment Officer, Axis Securities PMS, called the surprise 50 bps cut “pro-growth” and said the CRR cut would provide a much-needed liquidity boost to support credit growth. “We expect a gradual recovery in H2FY26, especially in unsecured lending and consumption,” he added.

We’re seeing early signs of stability in the unsecured segment. But we prefer banks with strong franchises, clean asset books and dependable management — like HDFC Bank, ICICI Bank, Kotak Bank and City Union Bank, he said.

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, however, flagged that while the rate cut could help growth, a big rate cut would impact the margins of banks and, therefore, bank stocks could come under pressure in the near term. "However, the credit growth that this rate cut is expected to stimulate will hopefully compensate for the dip in margins," he said.

Madhavi Arora, Chief Economist at Emkay Global, said, “The RBI seems to have front-loaded all policy measures. The ball is now in the banks’ court to transmit these actions faster to the broader economy.”

The RBI projected inflation at 2.9 per cent in Q1 FY26, gradually rising to 4.4 per cent by Q4, but well within the comfort zone. It retained India’s GDP growth forecast for FY26 at 6.5 per cent, citing robust fundamentals, strong corporate and government balance sheets, and favourable external sector dynamics.

The second advance estimates also point to a record wheat production and strong kharif arrivals, further supporting a softening of food inflation.

Some analysts flagged that while the rate cuts will aid domestic growth, RBI’s shift to a neutral stance hints at caution amid external headwinds. Debopam Chaudhuri, Chief Economist at Piramal Group, said the policy “could be remembered as a historic pivot” but added that narrowing yield gaps between India and the US might raise concerns.

Marzban Irani, CIO – Fixed Income, LIC Mutual Fund, noted, “CRR cut to bring down yields at the shorter end significantly. Investors can consider locking into shorter tenure funds to benefit from the move.”

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