The Reserve Bank of India's Monetary Policy Committee has cut its benchmark repurchase rate by 50 basis points from 6.00 percent to 5.50 percent at its policy review held today, a reduction bigger than the consensus forecast of a cut of 25 basis points. Officials have now cut this rate by 100 basis points over the last three meetings after the rate had been left on hold for two years.

Data released since the RBI's previous meeting in April have shown headline CPI inflation moderating from 3.61 percent in February to 3.34 percent in March and 3.16 percent in April, back below the mid-point of the RBI's target range of two percent to six percent. This decline was anticipated by officials and largely reflects the impact of food prices. Industrial production and PMI survey data have shown steady conditions.

In the statement accompanying today's decision, RBI officials again highlighted the recent decline in inflation and, as they did previously, expressed confidence that favourable weather conditions will further reduce food inflation pressures. Core inflation is expected to remain benign and officials have lowered their inflation forecasts for 2025 from 4.0 percent to 3.7 percent. Officials, however, expressed concerns about the impact of a challenging global environment and consider that it is imperative to continue to stimulate domestic private consumption and investment through policy levers to step up the growth momentum.

Reflecting this assessment, officials concluded that it was necessary for them to cut policy rates today in order to support growth. Having cut rates aggressively in recent months, officials now consider that there is limited scope to provide further policy support for growth and announced that they would shift the policy stance from"accommodative" to"neutral". They also noted that they will seek to strike a balance between supporting growth and containing inflation in upcoming meetings.

Everyone looks for a 25 bp rate cut from the RBI.

The Reserve Bank of India (RBI) issues six Bi-monthly Policy Statements a year. During these announcements the RBI will signal any shifts in its monetary stance, particularly with reference to the benchmark repo interest rate and its cash reserve ratio (CRR). The Governor will also update the Bank's view of recent economic developments and provide new forecasts for inflation and growth. A 4 percent inflation target with a +/- 2 percentage point tolerance band was formally implemented in August 2016 and will be overseen by a new six-member Monetary Policy Committee (MPC).

Although the RBI monitors many economic indicators - as indeed all central banks do - the RBI most closely monitors inflation. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity while lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, fewer homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or for those who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.

The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India. The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India. Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. Its function is to advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time. Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.