RBI MPC Cuts Repo Rate

The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday concluded its three-day policy review with a unanimous decision to cut the policy repo rate by 25 basis points, bringing it down from 5.50% to 5.25%. 

Key Highlights

• Repo rate cut by 25 bps to 5.25%
• Inflation drops sharply to a historic low of 0.3% in October 2025
• Average quarterly inflation (1.7%) falls below RBI’s lower tolerance band for the first time since flexible inflation targeting began
• Real GDP forecast upgraded to 7.3% for FY26, driven by strong festive consumption and GST rate rationalization
• CPI inflation projection cut to 2% for FY26, signalling sustained price stability
• RBI announces ₹1 lakh crore OMO purchases and a $5 billion USD/INR swap to ensure ample liquidity

Latest Updates

Governor Sanjay Malhotra announced that the committee would continue with a neutral stance, citing a remarkable improvement in the inflation environment along with robust economic growth.

Governor Malhotra highlighted that India has witnessed rapid disinflation since the October policy meet, marking a historic milestone in India’s monetary policy framework.

“For the first time since the adoption of flexible inflation targeting (FIT), average headline inflation for a quarter at 1.7% in Q2:2025-26, breached the lower tolerance threshold (2%) of the inflation target (4%). It dipped further to a mere 0.3% in October 2025. On the other hand, real GDP growth accelerated to 8.2% in Q2, buoyed by strong spending during the festive season which was further facilitated by the rationalisation of the goods and services tax (GST) rates,” Mr. Malhotra said in his address.

Calling the current economic conditions a “rare goldilocks period”, the Governor noted inflation at a benign 2.2%, combined with growth near 8% in the first half of the year.

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Global Outlook and Market Concerns

The Governor cautioned that despite global economic resilience, uncertainties remain due to geopolitical tensions, trade realignments, and monetary policy divergence among major central banks.
He pointed out the simultaneous forces of AI-driven optimism and overvaluation risks influencing global equity markets.

Revised Growth and Inflation Outlook

The MPC upgraded India’s real GDP forecast for FY26 to 7.3%, up from the earlier estimate of 6.8%. Meanwhile, CPI inflation was revised sharply downward to 2.0%, compared to 2.6% projected in October.

Updated CPI projections include Q1 FY27 is 3.9%, Q2 FY27 is 4.0%, Q3 FY26 is 0.6% and Q4 FY26 is 2.9%.

The update follows a multi-decade low in headline retail inflation — near 0.25% in October driven by falling food prices and GST cuts.

Liquidity Measures to Support Growth

To ensure adequate liquidity in the system, RBI announced two key measures 

• OMO purchases of government securities worth ₹1 lakh crore
• A 3-year USD/INR buy-sell swap of $5 billion

These moves aim to inject durable liquidity while supporting credit growth.

Policy Rate Changes

The standing Deposit Facility (SDF) is reduced to 5.00% following the repo rate cut. The Marginal Standing Facility (MSF) and Bank Rate is reduced to 5.50%

RBI governor explained the reason behind the rate cut, "The growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum."

ALSO READ: Difference between Repo Rate and Bank Rate

Rate-Cut Trend Continues

This latest decision marks the fourth rate cut in 2025, following:

• 25 bps cuts in February and April
• 50 bps cut in June

Retail inflation has remained below 4% since February, helping the MPC shift its focus toward growth support.

Conclusion

With demand strengthening, inflation easing, and liquidity boosted, economists describe the current macroeconomic environment as one of the most balanced phases in recent years. The Governor maintained that a neutral stance offers the flexibility needed to steer policy either way, depending on how growth and inflation evolve.