RBI cuts repo rate to 5.25% as growth outlook strengthens, inflation eases; loans to get cheaper
PTC Web Desk: The Reserve Bank of India (RBI) announced a 25 basis point reduction in the repo rate, bringing it down from 5.5% to 5.25%, as Governor Sanjay Malhotra unveiled the central bank’s latest monetary policy review on Friday. The rate cut aims to support economic expansion despite the rupee touching a new low this week.
The decision was approved unanimously by the Monetary Policy Committee (MPC) at the end of its three-day bi-monthly meeting. The committee weighed the benefits of record-low inflation against the pressure created by the weakening currency before concluding that supporting growth should remain the priority.
This is the second reduction in the repo rate this year, following June’s move when the MPC lowered it from 6% to 5.5%, encouraged by cooling inflation. Lower repo rates typically pave the way for more affordable home and auto loans, making borrowing easier for consumers.
The RBI noted that inflation has consistently stayed below earlier expectations, with core price pressures also showing a downward trend. Retail inflation, measured by the Consumer Price Index (CPI), is now projected at 2% for FY 2025–26, significantly lower than previous estimates.
For the first quarter of FY 2026–27, the RBI expects inflation to rise slightly to 3.9%, partly due to the increased cost of precious metals. The Governor said the risks to inflation remain “balanced,” suggesting no immediate threats to price stability.
India’s economic momentum also continues to surprise on the upside. The RBI raised its GDP growth forecast for the current financial year to 7.3%, up from its earlier estimate of 6.8%. Growth for the ongoing quarter (October–December) has been revised to 6.7%, compared to the previous projection of 6.4%. The previous quarter recorded impressive growth at 8.2%, marking a six-quarter high.
The Governor noted that the favourable balance between strong growth and soft inflation provides the RBI with “sufficient policy space” to support economic activity.
Key policy moves
Along with the repo rate cut, the MPC also updated the following benchmark rates:
Standing Deposit Facility (SDF): 5%
Marginal Standing Facility (MSF): 5.5%
To ensure smooth liquidity conditions, the RBI announced plans to conduct forex swap operations and purchase Rs 1 lakh crore worth of government bonds via Open Market Operations (OMO). These steps are expected to improve monetary transmission and maintain adequate funds in the financial system.
A look back at 2025
Reflecting on the year, Governor Malhotra said 2025 ended on a strong note, with “steady growth and subdued inflation” despite global economic uncertainties and trade disruptions. He added that India’s banking system remains healthy, supported by rising credit demand and robust retail lending activity.
The central bank will maintain a neutral policy stance as it moves into 2026, emphasising resilience, stability and confidence in the country’s economic trajectory.
- With inputs from agencies
