The Reserve Bank of India (RBI) unexpectedly lowered its key repo rate by 50 bps to 5.50% at its May meeting—larger than market expectations of a 25 bps reduction—while shifting its policy stance from accommodative to neutral. The move brought total rate cuts to 100 bps since February, pushing borrowing costs to their lowest level since August 2022. The decision was driven by easing inflation and ongoing uncertainty surrounding global trade tensions. The RBI also reduced the Standing Deposit Facility (SDF) rate by 50 bps to 5.25%, and the Marginal Standing Facility (MSF) rate and the Bank Rate to 5.75%. In addition, the central bank slashed the CRR by 100 bps to 3%, following a 50 bps cut last December, bringing it to the lowest level since April 2021. Regarding the economic outlook, the RBI maintained its GDP growth forecast for FY2025/26 at 6.5%. Meanwhile, inflation projections were revised down to 3.7% from 4.0%, remaining comfortably within the RBI’s 2–6% target range.
The Federal Reserve left the federal funds rate unchanged at 4.25%–4.50% for a fourth consecutive meeting in June 2025, in line with expectations, as policymakers take a cautious stance to fully evaluate the economic impact of President Trump’s policies, particularly those related to tariffs, immigration, and taxation. Officials also noted that uncertainty about the economic outlook has diminished but remains elevated. Despite this, the Fed continues to project two rate cuts later this year, though it anticipates only one quarter-percentage-point in 2026 and 2027. In its updated projections, the Fed downgraded its GDP growth forecast for 2025 to 1.4% (vs 1.7% in March) and for 2026 to 1.6% (vs 1.8%), while leaving the 2027 estimate unchanged at 1.8%. The unemployment rate is now expected at 4.5% in both 2025 and 2026 (vs 4.4% and 4.3%, respectively). As for inflation, the Fed sees the PCE rate at 3.0% in 2025 (vs 2.7%), easing to 2.4% in 2026 (vs 2.2%), and 2.1% in 2027 (vs 2.0%).
