RBI MPC Meeting: Major Cuts in Repo Rate and CRR Boost Market Sentiment
The Reserve Bank of India (RBI) has announced a 50 basis points cut in the repo rate and a 100 basis points reduction in the cash reserve ratio, significantly boosting market sentiment and real estate stocks.
RbiRepo RateCrrLtvReal EstateReal EstateJun 06, 2025
The CRR cut alone is estimated to release ₹2.5 lakh crore into the financial system. This is way more than the market had estimated and the cheer was palpable. Nifty Bank spiked more than 500 points from the day's low immediately after Governor Sanjay Malhotra made the announcement.
A CNBC-TV18 poll had estimated a 25 basis points rate cut. The poll indicated that low inflation and slower-than-expected growth are key reasons behind the anticipated move. Inflation has stayed below the RBI's 4% target, and first-quarter gross domestic product (GDP) growth is expected to miss earlier forecasts.
Additionally, the RBI revised the LTV (Loan-to-Value) ratio for gold loans below ₹2.5 lakh to 85% from 75%. This move is expected to provide more liquidity and ease the financial burden on borrowers. The real estate sector, in particular, is expected to benefit from these measures, with shares of real estate companies trading with gains of up to 6%.
The RBI's decision to change its stance to 'neutral' from 'accommodative' signals a cautious approach to future policy decisions. Governor Malhotra emphasized the need to balance growth and inflation while ensuring financial stability. The market's positive response to these announcements reflects the confidence in the RBI's strategy to support the economy during challenging times.
These measures are expected to have a ripple effect on various sectors, particularly those that are heavily dependent on credit and consumer spending. The real estate sector, which has been facing headwinds due to slowed demand and high interest rates, is likely to see a significant boost. The increased liquidity and reduced borrowing costs should help stimulate investment and consumer spending, thereby supporting economic growth.
In conclusion, the RBI's bold moves to cut the repo rate and CRR, along with the revision of the LTV ratio for gold loans, have been well-received by the market. These actions are expected to provide a much-needed impetus to the economy and help address the current challenges in growth and inflation.
Frequently Asked Questions
What is the new repo rate set by the RBI?
The new repo rate set by the RBI is 5.5%, which is a 50 basis points cut from the previous rate.
How much has the CRR been reduced by?
The CRR has been reduced by 100 basis points to 3%.
What is the revised LTV ratio for gold loans below ₹2.5 lakh?
The revised LTV ratio for gold loans below ₹2.5 lakh is 85%, up from 75%.
Why did the RBI cut the repo rate and CRR?
The RBI cut the repo rate and CRR to boost liquidity, support economic growth, and address low inflation and slower-than-expected GDP growth.
How has the market reacted to these announcements?
The market has reacted positively, with Nifty Bank spiking more than 500 points from the day's low and real estate stocks gaining up to 6%.
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