The Reserve Bank of India on Friday cut the repo rate by 25 basis points to 5.25%. This move ends its two- RBI MPC Meeting pause and continues the monetary easing cycle that started in February. So far, the central bank has made 125 basis points of cuts in 2025. Governor Sanjay Malhotra said this decision was possible because of a significant drop in inflation and stronger-than-expected economic growth.
The six-member Monetary Policy Committee (MPC) approved the decision after meeting from December 3 to 5. They based their decision on falling consumer prices, better global financial conditions, and renewed pressure on the rupee.
RBI MPC Meeting raise GDP Growth
In its policy statement, the RBI raised its full-year GDP growth forecast to 7.3%, up from 6.8%. This change is due to strong performance in the first half and steady growth across various sectors.
- Q3 FY26 growth is now at 7.0%, up from 6.7%.
- Q4 FY26 growth is now estimated at 6.5%, up from 6.2%.
The central bank also predicts the economy will grow by 6.7% in Q1 FY27 and 6.8% in Q2 FY27. Malhotra noted that domestic demand is strong and diverse, driven by high urban spending, steady growth in rural demand, and improving private investment. The manufacturing and services sectors are growing well due to lower input costs and increased capacity use.
Inflation at historic lows gives RBI space
India’s retail inflation dropped to 0.25% in October. This is below the RBI’s target range for the first time. The decline was mainly due to a sharp drop in key food items, which outweighed ongoing pressures from imported goods.
Core inflation also continued to decrease, excluding volatility from precious metals. As a result, the central bank now expects headline CPI inflation to be 2.0% for FY26, with quarterly estimates as follows
- Q3 FY26: 0.6%
- Q4 FY26: 2.9%
- Q1 FY27: 3.0%
- Q2 FY27: 2.8%
Malhotra said that the trend in inflation offers a clear opportunity to boost growth recovery. However, he stressed that the MPC is keeping a close eye on food price fluctuations and geopolitical risks.
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