The Reserve Bank of India (RBI) has reduced its key repo rate by 25 basis points—from 5.5% to 5.25%—in a move aimed at strengthening economic growth despite pressure on the Indian rupee. The announcement was made earlier today by RBI Governor Sanjay Malhotra.
The decision came after a three-day meeting of the Monetary Policy Committee (MPC), which unanimously agreed to the rate cut. The committee meets every two months to frame its policy roadmap. The move follows a previous rate cut in June, when the repo rate was lowered from 6% to 5.5% due to declining inflation.
The latest cut is expected to bring relief to retail borrowers, translating into cheaper loans, including home and vehicle financing.
Inflation Outlook and Growth Forecast
Governor Malhotra said the central bank now expects inflation to remain softer than previously estimated, supported by subdued underlying price pressures. Retail inflation, measured by the Consumer Price Index (CPI), has been revised downward to 2% for the financial year 2025–26.
For the first quarter of FY2026–27, inflation is projected at 3.9%, down from the earlier forecast of 4.5%. However, rising precious metal prices could exert marginal upward pressure on headline inflation. Malhotra added that risks to inflation remain “evenly balanced.”
On the growth front, the RBI has revised the Gross Domestic Product (GDP) outlook upward to 7.3% for the current financial year, compared to the earlier projection of 6.8%. The forecast for the ongoing quarter (October–December) has also been raised to 6.7% from 6.4%.
India recorded a six-quarter high growth rate of 8.2% in the previous quarter.
“The growth-inflation balance continues to provide policy space,” the governor said during the press briefing.
Other Key Policy Changes
Alongside the repo rate adjustment, the RBI has revised other benchmark rates:
- Standing Deposit Facility (SDF): Reduced to 5%
- Marginal Standing Facility (MSF): Reduced to 5.5%
Additionally, the central bank plans to conduct foreign exchange swaps and purchase government securities worth ₹1 lakh crore through Open Market Operations (OMO) to improve liquidity and strengthen monetary transmission.
Outlook for 2025
Reflecting on the year, Malhotra said India witnessed strong growth led by increasing retail lending and stable financial indicators, despite global geopolitical and trade challenges.
He emphasized that the RBI’s policy stance remains neutral as it heads into the new year with “hope, vigour, and determination.”
Bank credit has shown notable improvement, supported largely by consumer lending, he added.
With inflation cooling and growth momentum building, the latest policy shift signals the central bank’s priority to support economic expansion while closely watching currency movement and global volatility.
