The Reserve Bank of India (RBI) today reduced the repo rate by 25 basis points, bringing it down from 5.5% to 5.25%. Governor Sanjay Malhotra announced the decision after the conclusion of the Monetary Policy Committee (MPC) meeting, signalling a continued push to support economic growth despite pressure from the weakening rupee.
The rate cut approved unanimously during the three-day bi-monthly MPC review comes after inflation fell to record lows, giving the central bank more room to adjust monetary policy. The repo rate was last reduced in June, when it was lowered from 6% to 5.5%.
With this move, borrowers can expect cheaper EMIs on housing, vehicle, and personal loans, provided banks pass on the benefit through adjusted lending rates.
Inflation Outlook Softens Further
RBI said it expects inflation to remain below previous projections, with underlying price pressures easing across sectors.
-
Retail inflation (CPI) for FY2025-26 has now been revised downward to 2%, reflecting the current benign price environment.
-
For Q1 of FY2026-27, inflation is projected at 3.9%, lower than the earlier estimate of 4.5%.
-
Global precious metal prices may add marginal pressure but are unlikely to shift overall stability, Malhotra noted.
The Governor added that risks to inflation remain “evenly balanced,” meaning price levels are unlikely to rise sharply in the near term.
India’s Growth Forecast Upgraded Sharply
Alongside the rate cut, the RBI upgraded its economic growth projections:
-
GDP growth for 2025-26 is now expected at 7.3%, up from the earlier estimate of 6.8%.
-
For the current quarter (Q3, Oct–Dec), GDP is projected at 6.7%, compared with the previous 6.4%.
India recorded an impressive 8.2% GDP growth last quarter, the highest in six quarters, giving the economy strong momentum heading into 2026.
Malhotra said the overall growth-inflation balance “continues to provide policy space,” allowing the RBI to support expansion without jeopardizing price stability.
Key Monetary Policy Changes
Along with reducing the repo rate, the MPC made several additional adjustments:
-
Standing Deposit Facility (SDF): Adjusted to 5%
-
Marginal Standing Facility (MSF): Adjusted to 5.5%
-
Forex swaps & liquidity measures:
RBI will conduct forex swaps and purchase government bonds worth ₹1 lakh crore via OMO auctions to ensure smooth monetary transmission and adequate liquidity within the banking system.
These steps collectively aim to stabilise markets, strengthen the rupee, and support bank lending.
RBI’s 2025 Review: Growth Strong Despite Global Headwinds
Governor Malhotra noted that 2025 was marked by strong domestic growth and muted inflation, even as the global economy battled geopolitical tensions, trade disruptions, and volatile commodity markets.
He said the central bank remains “neutral but optimistic,” entering 2026 with increased confidence supported by healthy banking parameters, rising credit offtake, and resilient retail lending trends.
