In a significant policy move aimed at stabilizing the economy while supporting household spending, the Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points to 5.25%, marking the second major repo rate cut this year. RBI Governor Sanjay Malhotra announced the decision after a unanimous vote by the Monetary Policy Committee (MPC), asserting that the central bank is prioritising economic momentum amid historically low inflation.
The highly anticipated RBI repo rate announcement was delivered amid a mix of domestic optimism and global uncertainty. India’s inflation has fallen below the lower tolerance band for the first time since flexible inflation targeting began, giving policymakers room to ease the RBI policy rate without risking price volatility.
Inflation at Record Lows Gives MPC Policy Space
According to Governor Malhotra, the past two quarters have presented a “rare goldilocks window” for the Indian economy. Retail inflation saw a dramatic decline to 1.7% in Q2 and a near-record low of 0.3% in October. This remarkable softening of prices is what enabled the MPC to execute another repo rate cut, even as global markets battle volatility caused by geopolitical tensions and uneven growth among major economies.
The CPI inflation forecast for FY 2025–26 has been revised sharply downward to 2%, clearly below the RBI’s mid-point target of 4%. The governor noted that domestic inflation pressures remain comfortably contained, supported by declining food inflation and strong supply chains.
Economic Growth Stronger Than Expected
In contrast to subdued global growth, India’s GDP surged to 8.2% last quarter, driven by festivals, improved demand, and smoother execution of GST norms. With multiple positive indicators, the RBI has raised its FY2025–26 growth projection to 7.3%, up from the earlier 6.8%.
The governor noted that while some concerns remain—especially regarding capital flows and uncertain commodity prices—the tightening cycle in advanced economies appears to be slowing, creating favourable conditions for emerging markets.
Loans Expected to Get Cheaper as Transmission Begins
With the RBI policy rate lowered, banks are expected to pass the benefit to customers over the coming weeks. Consumers with home, auto, and personal loans should see reductions in EMI outflows as lenders begin rate transmission.
Economists say the repo reduction could revive credit demand in the housing and small business sectors, especially as retail borrowing has remained resilient throughout the year.
Liquidity Boost: RBI to Inject ₹1 Lakh Crore
To ensure easier liquidity conditions, the RBI also announced:
- ₹1,00,000 crore of OMO (Open Market Operation) bond purchases
- A $5 billion USD/INR buy-sell swap
- SDF adjusted to 5%
- MSF revised to 5.5%
These measures are designed to smoothen money supply, prevent yield spikes, and accelerate the pass-through of the RBI repo rate cut.
Governor Malhotra: “Entering 2026 With Confidence”
Sanjay Malhotra highlighted that despite global unpredictability—from trade tensions to evolving AI-driven market behaviour—the Indian economy has remained one of the strongest performers globally.
He emphasized that the RBI’s stance remains neutral, giving policymakers room to respond quickly to any emerging inflationary or liquidity challenges.
