Article Title: RBI cuts rate by 50 bps, interest burden to ease
08-06-2025
Economy Current Affairs Analysis
Context
• In a bid to spur growth at a time when inflation has come under control, the Reserve Bank of India’s Monetary Policy Committee on Friday voted 5:1 to slash the policy repo rate by a bigger-than-expected 50 basis points to 5.50% with immediate effect.
• This is the RBI’s third repo rate cut since February, and will further reduce the interest burden for borrowers, but will also cut the interest earned on savings by depositors.
Repo rate
• Repo rate (Repurchase Agreement Rate) is the interest rate at which commercial banks borrow money from the central bank.
• Purpose & Functioning: It helps banks meet short-term liquidity needs by borrowing funds.
• Banks provide securities as collateral and agree to repurchase them later at a higher price (including interest).
Impact on Borrowing Costs:
• Higher repo rate → Costlier loans for banks → Higher interest rates for consumers & businesses → Slower borrowing & spending.
• Lower repo rate → Cheaper loans for banks → Lower interest rates for borrowers → Increased borrowing & spending.
• Role in Monetary Policy: It is used by the central bank to control money supply, inflation, and economic growth.
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