The Reserve Bank of India (RBI) cut its key repo rate by 25 basis points on Friday during its monetary policy meeting, in line with a general consensus aimed at boosting liquidity since retail inflation remained low.
The central bank’s six-member monetary policy committee also decided to conduct open market operations of 1 trillion rupees and another $5 billion in forex swaps to boost transmission of lower rates and amp-up spending.
The decision to lower the repo rate to 5.25 per cent by the panel was unanimous, say sources, with the RBI Governor, Sanjay Malhotra, saying in a video address that the Indian economy is facing a “rare goldilocks” period.
The term is being used to refer to a period in which the economy is neither too slumped, nor too bolstered, but “just right”.
The total rate cut by the apex bank since February, 2025, now totals 125 basis points after it slashed rates during its meetings held in August and October.
Also Read: Economists bet on another RBI interest rate cut
Malhotra said the Indian economy has seen rapid disinflation since October, leading to a breach in the RBI’s lower threshold of tolerance.
With growth remaining strong, there was room created for the repo rate cut, he added.
Retail inflation had stood at an all-time low of 0.25 per cent in October, and is expected to stay in the lower range in the coming months.
The MPC retained the monetary policy stance at 'neutral'.
In a poll conducted by an international news agency ahead of last week’s GDP data, a majority of economists had expected the repo rate to be reduced by at least a quarter point at the policy meeting, although some analysts had anticipated no cuts after India’s economy expanded at a sharper-than-expected rate of 8.2 per cent in the July-September quarter.
Experts believe there will be a pause on the rate cut through 2026.
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