The Monetary Policy Committee (MPC) of the Reserve Bank of India in its meeting for December 2025 unanimously reduced the repo rate by 25 basis points to **5.25%**, while maintaining its neutral stance. Governor Sanjay Malhotra described India’s high growth and low inflation as “a rare Goldilocks period.” RBI raised FY26 GDP estimate to **7.3%** (from earlier estimates) as Q2 growth reached the highest in six quarters at **8.2%**, and also cut CPI inflation estimate to **2.0%** (from 2.6%) due to softening in food prices and GST rationalization.
Analyzing the December minutes (released on December 19), ICICI Bank’s Economic Research Group expects the MPC to remain on **longer pause**. Further easing will depend on whether inflation continues to remain below estimates. The situation is likely to remain in place until the February 2026 review so that the impact of the new GDP and CPI series on headlines can be assessed.
MPC members said softening inflation provides room for easing, but cautioned against risks such as damage to margins from prolonged low inflation, especially for SMEs. Growth may slow in H2FY26 as high-frequency indicators remain subdued, although household resilience exceeds expectations.
Liquidity support through OMO purchases (₹1 lakh crore announced) and FX swaps will continue to support transmission. Real interest rates near the lower end of the RBI’s comfort range limit aggressive rate cuts, and policy will depend on data to balance growth and stability.
Comments are closed.