June 2025 Monetary Policy

🏦 June 2025 Monetary Policy Highlights

• Repo rate slashed by 50 bps to 5.50% from 6.00% on June 6, marking the third consecutive cut this year (Feb, Apr, Jun), totaling a 100 bps reduction.
• Cash Reserve Ratio (CRR) lowered by 100 bps to 3%, designed to infuse liquidity into the banking system .
• Standing Deposit Facility (SDF) down to 5.25%, with the repo at 5.50% and Marginal Standing Facility (MSF) at 5.75%.
• Policy stance shifted from “accommodative” to “neutral”, indicating a data-driven pause for now.

🎯 Key Goals

• Boost growth amid slowing consumption and weak urban demand.
• Anchor inflation, which eased to around 3.16% in April, comfortably within the RBI’s 4% ±2% target band.

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💧 Liquidity Management

• The RBI is using Variable-Rate Reverse Repo (VRRR) auctions to manage a surplus in system liquidity (~₹4 trillion). A ₹1 lakh crore VRRR was conducted on June 27 and rolled over July 4.
• The aim is to keep overnight rates within the 5.25–5.50% corridor, ensuring effective transmission without excessive tightening.

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📈 Market Response & Outlook

• Banks have lowered savings and lending rates: SBI cut savings interest to ~2.5%, HDFC and ICICI to ~2.75%.
• Experts caution that while liquidity supports monetary transmission, it alone won’t drive credit growth—RBI should aim to maintain overnight rates near the policy repo.
• Next MPC scheduled for August 4–6, with markets expecting a hold on repo through fiscal year-end (March 2026) unless macro data dictates further action.

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🔍 Bottom Line

• The RBI has moderately eased policy to support growth while keeping inflation anchored.
• Neutral stance signals a pause—further rate cuts will depend on upcoming data (e.g., inflation trends, credit pickup, global risks).
• Liquidity operations (VRRR) reflect a careful approach to keep short-term rates aligned within the policy corridor.