RBI Cuts Repo Rate to 5.50%: Third Consecutive Cut Signals Major Policy Shift for Fixed Deposits and Bonds

The Reserve Bank of India (RBI) has delivered its third consecutive repo rate cut, slashing rates by 50 basis points to 5.50% – the most aggressive easing cycle in over five years. After reducing rates by 100 basis points since February 2025, the RBI has now shifted to a neutral stance. Here’s exactly how this dramatic policy reversal will impact your investments and savings.

The Big Picture: Historic 100 Basis Points Cut in Four Months

The RBI’s Monetary Policy Committee has delivered an unprecedented easing cycle, cutting rates three times consecutively:

• February 2025: 25 basis points cut (6.50% to 6.25%)
• April 2025: 25 basis points cut (6.25% to 6.00%)
• June 2025: 50 basis points cut (6.00% to 5.50%)

This aggressive 100 basis points reduction represents the fastest easing cycle since the 2020 pandemic response. However, RBI Governor Sanjay Malhotra signals this may be the end of the cutting cycle, stating: “After having reduced the policy repo rate by 100 bps in quick succession since February 2025, monetary policy is left with very limited space to support growth. Hence, the MPC also decided to change the stance from accommodative to neutral.”

Key Numbers You Need to Know:

• Current Repo Rate: 5.50% (down 100 bps since February)
• Policy Stance: Shifted from accommodative to neutral
• Rate Cut Cycle: Likely paused after 100 bps reduction
• Total Easing: Most aggressive since pandemic era
• Future Outlook: Data-dependent monetary policy ahead

How This Rate Cut Affects Your Money

Fixed Deposits: Significant Rate Decline Expected

The cumulative 100 basis points cut has created substantial downward pressure on FD rates:

The New Reality: Banks have already begun reducing FD rates significantly following the aggressive easing cycle. New deposits are offering substantially lower returns compared to early 2025.

What This Means for You: With the policy stance now neutral, current FD rates may stabilize around these lower levels. The window for securing higher rates has largely closed.

Finzace Strategy: Despite the rate cuts, our partner banks still offer attractive fixed deposit rates up to 9.10%. These competitive rates remain available for a limited time, making it crucial to invest before they adjust downward in line with the broader market trend.

Bonds: The Big Winners in This Rate Cycle

The 100 basis points rate cut has created exceptional opportunities in the bond market:

Substantial Price Appreciation: Existing bondholders have benefited from significant capital gains as bond prices surged with the aggressive rate cuts.

Income vs. Growth Balance: With rates now at 5.50% and policy stance neutral, bonds offer attractive yields while retaining potential for modest further gains if economic conditions warrant additional easing.

Strategic Positioning: The neutral stance suggests the easy gains from rate cuts may be behind us, making current bond yields more attractive from an income perspective rather than capital appreciation.

What Financial Experts Are Saying

The market has absorbed the aggressive easing cycle well, with bond markets delivering strong returns over the past four months. However, the shift to a neutral stance has prompted analysts to reassess future expectations.

Industry experts now believe the RBI has largely exhausted its easing ammunition, with Governor Malhotra emphasizing that “monetary policy is left with very limited space to support growth.” This signals a more data-dependent approach going forward, with the “fast-changing global economic situation” requiring “continuous monitoring.”

Looking Ahead: RBI’s Cautious Neutral Stance

The central bank’s outlook has shifted significantly:

• Policy Space: Limited room for further rate cuts acknowledged
• Data Dependency: Future decisions will be based on incoming economic data
• Global Factors: Increased focus on international economic developments
• Growth-Inflation Balance: Continued emphasis on maintaining equilibrium

The Governor’s emphasis on “carefully assessing the incoming data and the evolving outlook” indicates the RBI will be more reactive than proactive in the coming months.