RBI May Cut Rates Again—What It Means for You and the Economy

As India steps into the new financial year 2025–26, the Reserve Bank of India’s Monetary Policy Committee (MPC) is gearing up for its first major policy announcement. The financial world is holding its breath.

From startups to real estate developers, from automobile makers to retail borrowers—everyone has a stake in what the RBI decides next. Will borrowing costs come down further? Will the central bank take a more growth-oriented stance amid mounting global uncertainties?

According to leading economists and market experts, the RBI is widely expected to deliver a 25 basis point (bps) rate cut—bringing the benchmark repo rate down from the current 6.25% to 6%. But this isn’t just about numbers. It’s a signal—of where India’s monetary policy might be headed in the coming months.

The Build-Up: Why This Announcement Matters

The anticipation around this particular policy decision is intense, and rightly so. This will be the second MPC meet since the central bank initiated its rate-cutting cycle earlier this year in February—after nearly five years of holding back. Back then, the RBI reduced the repo rate by 25 bps, surprising many with a move that broke a long pause on rate changes since February 2023.

That move was interpreted as the beginning of a softening stance, and if the RBI follows through again now, it could signal a more aggressive push toward economic revival.

For India’s burgeoning startup ecosystem, where access to affordable credit can be the difference between stagnation and scale-up, this decision could be pivotal.

Inflation Isn’t the Problem—Growth Might Be

What’s fuelling the market’s confidence in another rate cut? Two words: controlled inflation.

India’s retail inflation in February 2025 stood at 3.61%, well within the RBI’s comfort zone of 4%. That gives the central bank room to maneuver. But while inflation appears tamed, other economic challenges are beginning to surface.

One major concern is the rising pressure on India’s exports. Recently, the United States imposed a steep 26% tariff on Indian imports, dealing a blow to several export-reliant sectors. Such external shocks could dampen economic momentum in the coming months.

In response, the RBI has already taken steps to inject liquidity into the system. According to a Reuters report, the central bank has pumped more than ₹5.2 trillion through a combination of debt purchases and forex swaps—efforts designed to stabilise markets and keep lending channels open.

A second consecutive rate cut could amplify these liquidity measures, encouraging more lending and boosting demand—especially in consumer-driven sectors like housing, automobiles, and retail.

Could There Be a Change in RBI’s Stance?

Currently, the RBI’s policy stance is labelled as ‘neutral’. But industry watchers believe a subtle but significant shift may be on the horizon. There’s a growing buzz that the MPC might revise this stance to ‘accommodative’.

Such a move would carry deeper meaning than the rate cut itself. An ‘accommodative’ stance suggests the central bank is not just cutting rates this time, but is also open to further easing if conditions demand.

This would send a strong pro-growth signal—something Indian entrepreneurs, especially in the startup world, would be keen to hear. Affordable borrowing, increased consumer spending, and easier credit access could create a more vibrant business environment across sectors.

Quick Explainer: What Exactly Is the Repo Rate and MPC?

For those newer to economic policy, here’s a quick breakdown.

The Monetary Policy Committee (MPC) is a six-member panel, headed by the RBI governor. It includes three internal members from the RBI and three external experts appointed by the government. This committee meets every two months to assess the health of the economy and set interest rates accordingly.

The repo rate is the rate at which the RBI lends money to commercial banks. When this rate goes down, it becomes cheaper for banks to borrow money. In turn, banks often pass on the benefit to consumers and businesses through reduced loan interest rates.

So, when the repo rate drops, housing loans, car loans, startup loans—even EMIs—can become more affordable.

If Wednesday’s decision includes a 25 bps rate cut, it would bring the cumulative rate reduction in 2025 to 50 bps—a meaningful signal for the financial ecosystem.

RBI’s Forecasts: A Balancing Act Between Inflation and Growth

In its previous policy meet, the RBI had shared its inflation and growth projections, which help guide expectations.

• For FY25, CPI inflation was pegged at 4.8%, with the last quarter expected to average 4.4%.

• For FY26, assuming a normal monsoon (a crucial assumption in India), inflation is expected to decline further to 4.2%, with quarterly figures ranging between 3.8% and 4.5%.

On the growth side, the RBI projected:

• GDP growth at 6.4% for FY25, largely driven by an uptick in private consumption.

• A stronger growth of 6.7% in FY26, especially during the first half of the year.

This mix of softening inflation and moderately strong growth gives the RBI room to breathe—and perhaps, room to act.

As India’s economic landscape evolves amid global challenges, the RBI’s policy decisions are becoming more than just macroeconomic moves—they’re signals of strategy, direction, and confidence.

A 25 bps rate cut, combined with a shift in stance to ‘accommodative’, would show that the central bank is ready to prioritise growth while staying vigilant on inflation. For India’s business community—and especially for startups operating in capital-sensitive sectors—this could be the boost they’ve been waiting for.

The RBI’s decision will also be accompanied by the release of its Monetary Policy Report (MPR), which will provide a deeper look into its outlook for inflation, growth, and future policy directions.

So as Wednesday’s decision draws near, one thing is clear: this isn’t just another policy meet. It could very well set the tone for the entire financial year ahead.