The Reserve Bank of India (RBI) cut its key repo rate by 25 basis points on Friday, delivering an expected move as policymakers worked to support economic growth amid easing inflation pressures.
The Monetary Policy Committee voted unanimously to reduce the repo rate to 5.25% from 5.50% and maintained a “neutral” policy stance. This approach signals flexibility to respond to changing macroeconomic conditions.
Governor Sanjay Malhotra said inflation had “eased significantly” and was now expected to be softer than earlier estimates. He noted that price pressures were cooling across a broad range of sectors.
Reflecting this shift, the RBI lowered its consumer inflation forecast for FY26 to 2%, down from the previous estimate of 2.6%.
The central bank also reaffirmed confidence in India’s economic momentum. It now projects real GDP growth of 7% in Q3 FY26, 6.5% in Q4, and 7.3% for the full fiscal year — slightly higher than the earlier 6.8% outlook.
The update followed strong economic data showing that India’s economy expanded 8.2% in the July–September quarter, the fastest pace in 18 months. Growth was supported by robust consumer spending, improved manufacturing activity, and rising private investment.
Alongside the rate cut, the RBI introduced several liquidity measures. These include up to 1 trillion rupees in open market operations and a $5 billion dollar-rupee buy-sell swap to maintain smooth credit conditions and support bond market stability.
However, Malhotra warned that global uncertainty still poses downside risks and noted that some indicators show pockets of weakness.
He described the current environment as a rare “goldilocks” phase, marked by strong GDP growth, sharp disinflation, and stable demand — even as the rupee briefly touched record lows.
The rupee traded 0.2% higher at 90.02 per dollar, staying close to Thursday’s record level of 90.5.
The MPC added that it retains sufficient policy space to continue supporting growth, with economic activity in the third quarter stronger than initially expected.
