RBI slashes repo rate by 25 bps, lifts GDP growth forecast

The Reserve Bank of India (RBI) on Tuesday reduced the repo rate by 25 basis points to 5.25 per cent, saying the move is aimed at accelerating economic growth. Announcing the decision after the Monetary Policy Committee (MPC) meeting, RBI Governor Sanjay Malhotra said the central bank would infuse additional liquidity in the economy through open market operations, with the purchase of government securities worth ₹1 lakh crore. In addition, a dollar–rupee swap facility of $5 billion will be introduced to further ease liquidity conditions.

Malhotra said that the sharp rise in economic growth to 8.2 per cent in the second quarter of the current financial year, combined with a steep fall in inflation, had created a "rare Goldilocks period" for the Indian economy.

He said that the benign inflation has given headroom to go for a repo rate cut to support growth. India's retail inflation dropped to a historic low of 0.25 per cent in October 2025, marking the lowest level since the Consumer Price Index (CPI) series was introduced. Besides, the Indian economy has clocked better-than-expected GDP growth of 8.2 per cent in the second quarter.

The RBI has also raised its projection for the country’s GDP growth to 7.3 per cent from 6.8 per cent earlier.

Malhotra further stated that the RBI has decided to stick to "neutral policy stance." A neutral stance requires neither stimulation nor curbs on liquidity as it strikes a fine balance between controlling inflation without hurting growth. The RBI has been sticking to the neutral stance as it was waiting for the earlier monetary policy easing to play out and trade-related implications to unfold. 

The RBI Governor also noted that the country’s foreign exchange reserves had risen to an impressive $686 billion, providing a robust import cover of nearly 11 months. At the same time, he cautioned that geopolitical tensions and global trade uncertainties continued to pose downside risks to the economic outlook.

“The RBI’s decision to trim the repo rate by 25 basis points while maintaining a neutral stance signals a calibrated shift towards supporting growth, without sending an overly aggressive easing signal to the markets. RBI’s communication is straightforward that the apex will do whatever it takes to support growth given the deflationary trend in the price gauge,”  said Vinod Francis, GM & CFO, South Indian Bank.

“By combining a modest rate cut with a neutral stance, the MPC has tried to balance softening inflation with still-resilient growth.  This, in my view, is necessitated by the weakening Rupee and narrowing interest rate spread between India and the US markets,” he added.

"The MPC has in a platter given what the market expected. A Rate cut alongside long dated Swaps and OMOs, not only keeps the liquidity promise intact, but also will keep the Currency in relative balance. The market appears to have reacted positively on all counts," said Lakshmanan V, Group President and Head, Treasury, of the Federal Bank.

The monetary policy committee, chaired by the RBI Governor, had left the repo rate unchanged in the last two reviews, held in August and October, in order to keep inflation in check. Before that the central bank reduced the repo rate by 100 bps from 6.5 per cent to 5.5 per cent in quick succession between February and June and the transmission to the economy was still working out.

A lower policy rate and more liquidity with banks leads to a decline in interest rate on bank loans, which makes borrowing easier for consumers as well as businesses, resulting in more consumption and investments in the economy, leading to higher growth. However, the effectiveness of the rate cut hinges on how quickly and efficiently commercial banks pass on the benefits to borrowers.

(With inputs from IANS)