Key Points:
- Housing and vehicle loans become cheaper.
- Inflation forecast cut to 2%, GDP raised to 7.3%.
- Liquidity measures and market support announced.
The Reserve Bank of India announced an RBI repo rate cut, lowering rate by 25 basis points to 5.25 percent on Friday after a unanimous Monetary Policy Committee meeting aimed at supporting growth as inflation eases and the rupee weakens.
The RBI said the decision follows a three-day review held every two months to determine the central bank’s policy direction. Governor Sanjay Malhotra said the rate move is expected to make housing and vehicle loans cheaper for millions of borrowers.
“The growth-inflation balance gives us adequate policy space,” Malhotra said at a press briefing. “We remain focused on ensuring smooth monetary transmission and supporting the economy’s momentum.”
This is the second RBI repo rate cut this year, following a cut in June from 6 percent to 5.5 percent as retail inflation cooled. The central bank noted that the rupee hit a new low on Thursday but said currency concerns would not outweigh the need to bolster domestic demand.
Economists said the cut aligns with the central bank’s recent signals. “With inflation at record lows, the RBI has room to act,” said Kavita Iyer, an economist at Mumbai-based Centrum Research. “The challenge will be balancing growth needs with currency pressures.”
MPC Vote Signals Focus on Growth as Inflation Softens
The RBI lowered its inflation outlook for FY2025-26, projecting retail inflation at 2 percent, down from earlier estimates. It said underlying inflation pressures were softer than headline readings suggested. Malhotra added that risks to inflation are “evenly balanced.”
For the first quarter of FY2026-27, the RBI projected inflation at 3.9 percent, compared with the previous 4.5 percent estimate. Rising precious metal prices remain a key upside risk, the governor said.
The central bank raised its GDP forecast for the current fiscal year to 7.3 percent, up from 6.8 percent, citing strong momentum in services and an uptick in bank credit. Growth for the October-December quarter is now projected at 6.7 percent.
“Domestic demand remains resilient, and investment activity is strengthening,” said Neeraj Bhatia, chief economist at Aspire Capital. “The RBI appears confident that inflation will stay within target even with supportive rates.”
RBI Trims Inflation Outlook, Lifts GDP Forecast
Last quarter’s GDP growth hit 8.2 percent, the highest in six quarters, reinforcing confidence among policymakers. The RBI said overall financial conditions remained stable despite geopolitical and trade uncertainties.
Malhotra said the MPC continues to maintain a neutral stance heading into the new year. He added that 2025 had been marked by “robust growth and benign inflation,” with retail lending playing a significant role in supporting economic activity.
Central Bank Adjusts Liquidity Tools, Maintains Neutral Stance
Alongside the RBI repo rate cut, the committee revised the Standing Deposit Facility to 5 percent and the Marginal Standing Facility to 5.5 percent. The RBI also announced plans for forex swaps and bond purchases worth ₹1 lakh crore through Open Market Operations to ensure adequate liquidity.
“These measures should help stabilize markets and improve transmission,” Malhotra said.
The central bank said it expects lending conditions to ease further as banks adjust benchmark-linked rates in response to Friday’s RBI repo rate cut.
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