MPC meeting: RBI cuts repo rate by 25 basis points to 5.25%

Virendra Pandit

New Delhi: The Reserve Bank of India (RBI) on Friday slashed its repo rate by 25 basis points from 5.5 percent to 5.25 percent, the central bank’s governor, Sanjay Malhotra, announced, the media reported.

The decision was taken unanimously after a three-day meeting of the RBI’s Monetary Policy Committee (MPC), held every two months to decide the central bank’s strategy, as it weighed record low inflation against a falling rupee that hit its lowest on Thursday.

The MPC had earlier reduced the key lending rate in June from 6 percent to 5.5 percent in view of a softening inflation. A cut in the repo rate is expected to translate into cheaper housing and vehicle loans for retail borrowers.

The central bank expects retail inflation to be softer than its earlier projection, with underlying inflation pressures being lower than the headline estimates. Consumer Price Index (CPI) inflation, or retail inflation, has been projected downwards at 2 percent for FY26.

For the Q1FY27, the inflation is projected at 3.9 percent, lower than its previous estimate of 4.5 percent, with a rise in precious metal prices expected to add to the headline CPI.

The risks to inflation forecasts are evenly balanced, Malhotra said.

The RBI also sharply raised the Gross Domestic Product (GDP) forecast for the current financial year from its earlier estimate of 6.8 percent to 7.3 percent. The GDP forecast for the current quarter (Q3, October-December) is also higher at 6.7 percent than the earlier 6.4 percent.

The last quarter, Q2FY26, recorded a six-quarter high GDP growth at 8.2 percent.

The growth-inflation balance continues to provide policy space, Malhotra said.

Besides the repo rate, the MPC also adjusted the Standing Deposit Facility (SDF) to 5 percent and Marginal Standing Facility (MSF) to 5.5 percent.

It also decided to conduct forex swaps and buy bonds worth Rs 1 lakh crore via Open Market Operations (OMO) auctions, hoping that these would facilitate monetary transmission and provide sufficient liquidity.

Malhotra said the year 2025 saw robust growth and benign inflation despite continuing challenges arising from geopolitical and trade uncertainties.

The RBI’s stance remains neutral, and it approaches the new year 2026 with new hope, vigor, and determination, he said, adding that financial parameters of the bank remain robust, with the bank credit seeing an uptick and retail lending supporting growth.