The Reserve Bank of India (RBI) cut its key repo rate by a larger-than-expected 50 basis points on Friday and slashed the reserve ratio for banks as low inflation gave policymakers room to focus on supporting growth amid a volatile global economy.

The central bank, however, changed its monetary policy stance from ‘accommodative’ to ‘neutral’, stating that it may have limited space for further easing.

Tensions fuelled by U.S. President Donald Trump’s trade tariffs and the prospect of an economic slowdown in the United States and elsewhere have fuelled global uncertainty and prompted central banks to act.

China, South Korea and Indonesia have also cut rates to support their economies, although not to the extent of the RBI’s 100 basis point reduction in less than six months.

“Certainty in the uncertain environment was necessary; hence the front-loading of rate cuts,” RBI governor Sanjay Malhotra said at a press conference following Friday’s decision.

The Monetary Policy Committee (MPC), which consists of three RBI officials and three external members, cut the repo rate, opens new tab to 5.50%. It has now cut rates across three consecutive meetings in 2025, starting with a quarter-point reduction in February, its first cut since May 2020. It made a similar-sized cut in April.

Five of the six committee members voted in favour of the decision.

The RBI also cut the cash reserve ratio by 100 basis points to 3%, adding to already surplus liquidity. The cut will take effect in four stages between September and December.

“The change in the growth-inflation dynamics calls for not only continuing with policy easing but also the MPC felt front-loading the rate cuts to support growth,” Malhotra said.

“After having cut the policy 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,” he said.

India’s GDP growth surged to 7.4% in the January-March quarter and the central bank projects the economy will expand at 6.5% this financial year.

“Today’s monetary policy actions should be seen as a step towards propelling growth to a higher aspirational trajectory,” Malhotra said, adding the aspiration is for growth of between 7% and 8%.