Rate-sensitive sectors like auto, banking, non-banking finance company (NBFC), and realty gained in trade on June 6, 2025, as the Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC) went for a surprise 50 basis point (bps) cut in repo rate. Investors had earlier largely priced in a more modest 25 bps cut. A more aggressive 50 bps cut turned out as a positive surprise for interest rate-sensitive sectors. The central bank also shifted its policy stance from 'accommodative' to 'neutral'.
With this cut, the repo rate now stands at 5.5 per cent, following two consecutive 25 basis point cuts in the February and April MPC meetings. The repo rate impacts borrowing costs, which leads customers to lend more, thereby spurring economic growth.
After the rate cut announcement, Nifty Bank, which tracks the performance of top 12 public and private banks, rose around 1.5 per cent, hitting a fresh record high. In early trade, banking stocks were trading lower. Similarly, the Nifty Realty gained as much as 3 per cent, followed by Nifty Financial Services, which gained up to 1.8 per cent, touching a new all-time high. Nifty Auto too gained over 1 per cent.
The RBI has also lowered its inflation forecast for FY26 to 3.7 per cent, down from its earlier estimate of 4 per cent. However, it has kept its gross domestic product (GDP) growth projection unchanged at 6.5 per cent for the same period.
How Repo Rate Cut Spurs Growth
When the RBI cuts the repo rate, it leads banks to borrow money from RBI at a lower cost. This usually leads to lower interest rates on loans for businesses and consumers. With cheaper loans, customers and companies are more likely to borrow and spend more, which typically boosts economic growth.
The RBI usually cuts interest rates when growth is slowing or inflation is under control, with an aim to encourage demand and support economic activity.
More Rate Cuts Ahead Or Pause In Rate Cut Cycle
Suvodeep Rakshit, Chief Economist at Kotak Institutional Equities, said the RBI surprised markets with a trio of moves - a 50 bps rate cut, a 100 bps cut in the Cash Reserve Ratio (CRR) scheduled between September and November, and a shift in policy stance back to neutral. According to Rakshit, these actions effectively signal a pause in the rate-cut cycle. He added that the RBI will now focus on ensuring quick and full transmission of the cumulative 100 basis points cut so far, with future policy decisions hinging on domestic growth and inflation trends.
Rakshit added that he does not expect any more rate cuts in the upcoming policy meetings as the RBI will be closely watching how global growth and domestic inflation develop.
Rahul Goswami, CIO and MD of India Fixed Income at Franklin Templeton, said the RBI has effectively frontloaded its rate-cutting cycle with a cumulative 100 basis point reduction over just four months. However, by shifting its policy stance back to neutral, Goswami said, the central bank is signalling a likely pause as it waits to see how the previous cuts play out in the broader economy before taking any further steps.
Abhishek Bisen, Head-Fixed Income, Kotak Mahindra AMC expects further rate action to be data dependent, however, he believes there is scope for more 25 bps rate cut in this cycle, though timing of cut is uncertain.
