(Image source from: PTI)
The Reserve Bank of India (RBI) has reduced its repo rate by 25 basis points from 5.5% to 5.25%, as announced by the central bank's governor Sanjay Malhotra this morning. This move aims to enhance economic growth while downplaying worries about the falling rupee. The decision was made unanimously after a three-day meeting of the RBI's Monetary Policy Committee (MPC), which takes place bi-monthly to shape the central bank's approach. The committee considered extremely low inflation against a rupee that recently reached a record low. Previously, in June, the MPC had lowered the main lending rate from 6% to 5.5% due to easing inflation. A reduction in the repo rate is likely to lead to more affordable housing and vehicle loans for individual borrowers.
The RBI anticipates that retail inflation will be lower than previously expected, with fundamental inflation pressures being less severe than the main estimates. The Consumer Price Index (CPI) inflation, or retail inflation, has been revised downward to 2% for the fiscal year 2025-26. For the first quarter of fiscal year 2026-27, inflation is projected at 3.9%, down from an earlier prediction of 4.5%, with increasing prices of precious metals likely to contribute to the overall CPI. The risks regarding inflation predictions are balanced, Malhotra mentioned. Additionally, the RBI has significantly raised the Gross Domestic Product (GDP) forecast for the current financial year to 7.3% from a prior estimate of 6.8%. The GDP outlook for this quarter (Q3, October-December) is also up at 6.7%, compared to the earlier forecast of 6.4%. Last quarter, the GDP growth hit a six-quarter high of 8.2%. The balance between growth and inflation continues to give room for policy adjustments, Malhotra stated.
Along with the repo rate, the MPC also changed the Standing Deposit Facility (SDF) to 5% and the Marginal Standing Facility (MSF) to 5.5%. They have also decided to carry out forex swaps and purchase bonds worth Rs 1 lakh crore through Open Market Operations (OMO) auctions, aiming to support monetary transmission and ensure ample liquidity. In the last month of 2025, Malhotra reported that the year experienced strong growth and manageable inflation despite ongoing challenges related to geopolitical and trade issues. The RBI's position remains neutral, and it looks forward to the new year with hope, energy, and determination, he added, stating that the bank's financial situation is strong, with an increase in bank credit and retail lending fostering growth.
