RBI Surprises The Market With A 50 Basis Points Reduction In Repo Rate And A 100bp CRR Cut — Motilal Oswal

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Motilal Oswal Report

At its second meeting of FY26, the RBI's Monetary Policy Committee, with a majority of five out of six members, decided to reduce the benchmark repo rate by 50bp to 5.5% from 6.0% in the Apr'25 policy, marking its third consecutive cut.

The RBI's decision to cut rates by 50bp came as a big surprise against both our and consensus expectations of a third consecutive 25bp rate cut. We view the RBI's decision as a strong and timely intervention to stimulate domestic demand.

However, the MPC has also unanimously decided to change the stance to "neutral" from "accommodative", implying that the rates can now go either way, depending on the incoming data and evolving growth outlook. "…after having reduced the policy repo rate by 100 basis points in quick succession since February 2025 the Monetary Policy Committee also felt that under the present circumstances, monetary policy is now left with very limited space to support growth….", the Governor mentioned.

Another big surprise came from the announcement of a CRR cut of 100bp to 3% of NDTL (much more than market expectations) from 4% earlier. The move will boost the banking system's liquidity and ease monetary conditions to bolster lending growth.

This reduction will be carried out in four equal tranches of 25bp each, with effect from the fortnights beginning Sep, 06, 4th Oct, Nov 01, and Nov, 29 '25.

The CRR cut would release primary liquidity of ~Rs 2.5 trillion to the banking system by Dec'25."…besides providing durable liquidity, it will reduce the cost of funding of the banks, thereby helping in monetary policy transmission to the credit market…", the Governor mentioned.

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