RBI Cuts Repo Rate by 50 Bps: How Did It Impact the Stock Market and Rupee?

The Reserve Bank of India's Monetary Policy Committee (MPC) cut the repo rate by 0.50% (50 basis points) to 5.50% on Friday, June 6. This is the third rate cut in a row this year. The MPC also changed its policy stance from 'accommodative' to 'neutral', showing a more balanced approach in response to changing economic conditions.

So far in 2025, the RBI has reduced the repo rate by a total of 100 basis points between its February and June policy meetings. This significant rate cut is expected to have a considerable impact on bank lending rates and fixed deposit returns.

Additionally, the RBI reduced the cash reserve ratio for banks by 100 basis points to 3% with phased implementation from September.

Indian stock market is showing a sharp jump following the rate cut while Indian Rupee has experienced modest depreciation.

Rate Policy Impact on the Indian Stock Market

The stock market has come to action, reversing he slow start following the huge rate cut of 50 basis points by RBI Governor Sanjay Malhotra June monetary policy review, along with a huge Rs 2.5 Lakh crore liquidity infusion with a 100 basis point CRR cut. This has sparked optimism across sectors and boosted investor sentiment.

The Sensex went over 800 points to its intraday high of 82,299.89 while nifty moved up by 260 points to its day high of 25,029.50. The sharp upward movement was supported by rally in the broader markets.

Top-performing sectors included Bank Nifty, Nifty Financial Services, and Nifty Realty, each gaining over 3% on strong investor sentiment following the RBI's rate cut.

RBI MPC Rate Cut Impact on the Indian Rupee

The USD/INR currency pair initially surged to a high of 85.98 following the Reserve Bank of India's dovish policy announcement, which included a 50 basis point cut in the repo rate. However, despite the rate cut, the RBI shifted its policy stance to 'Neutral,' which helped stabilize the exchange rate and kept the USD/INR within a relatively tight trading range.

"Supporting this stability is India's robust foreign exchange reserve position, which currently stands at an impressive $691.5 billion. These reserves provide a strong buffer against external shocks and are sufficient to cover nearly 11 months of imports-an important indicator of the country's external sector resilience." Quoted Amit Prabhari, MD of CR Forex Research.

According to experts, while a rate cut could ease some pressure on the rupee by improving liquidity and attracting foreign investments, it may also result in increased rupee supply, which could limit the currency's upside potential.

Future Outlook

RBI's rate cut has come following a sustained decline in inflation to 3.2% previously, which was 4% in April. This aims to liquidate cash flow into the country, leading to a boost in growth after global uncertainties.

RBI's significant policy move is aimed at stimulating growth and easing liquidity pressures. While the immediate market reaction was roaring, with the stock indices rising up with Bank Nifty, Nifty Financial Services & Nifty Reality being top contributors. The rupee's decent surge highlights market optimism, but the potential increase in rupee supply remains a factor to watch.