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The Reserve Bank of India (RBI) on Friday, December 5, lowered the repo rate by 25 basis points to 5.25%, even as the monetary policy committee is trying to balance India's record-low inflation against a plunging rupee.
This is the first rate cut following the RBI’s previous three-phase easing cycle this year, highlighting the increasing confidence in India’s financial strength.
Citigroup, Standard Chartered, and the State Bank of India, among others, had predicted a pause, citing currency pressures and GDP growth numbers being strong, warranted caution.
However, the Monetary Policy Committee (MPC) decided to reduce the rate to support the economic flow amid softening price pressures.
44 economists polled by Bloomberg projected a quarter-point cut; the rupee’s fall below Rs. 90 per US dollar had clouded expectations.
The three-day MPC meeting, held from December 3 to 5, resulted in several important policy updates:
Repo rate cut by 25 bps to 5.25%
Policy stance maintained as Neutral
FY26 GDP growth projection raised to 7.3% from 6.8%
FY26 inflation outlook lowered to 2% from 2.6%
RBI Governor Sanjay Malhotra stated that the committee voted unanimously in favour of the rate reduction after evaluating the latest economic indicators.
“After a detailed assessment of the evolving macroeconomic conditions and the outlook, the MPC voted unanimously to reduce the policy repo rate by 25 basis points to 5.25% with immediate effect,” he said.
To support financial system liquidity, the RBI Governor Sanjay Malhotra announced:
Open Market Purchases (OMO) of government securities worth Rs. 1 lakh crore
A three-year USD-INR buy-sell swap of $5 billion
The governor stated that the resulting measures were intended to ensure smooth credit movement and to counterbalance the liquidity tightness that is developing as the economy enters the last quarter of the fiscal year.
Also Read: Rupee Crashes Past 90, Daily Essentials and Consumer Goods Set to Cost More
The rate cut comes amid a mix of supportive and challenging macroeconomic factors. India continues to post 8%+ GDP growth, signalling robust economic activity.
At the same time, the rupee has been experiencing downward pressure, breaking historical lows amid uncertainty surrounding India-US trade negotiations.
Given these dynamics, the MPC is confident that the easing in inflation, consistent core prices, and resilient growth provide adequate policy space.
Governor Malhotra emphasized that while some moderation in growth is likely next year, the overall macroeconomic environment remains favorable for sustaining momentum.
