RBI Cuts Repo Rate to 5.25% as Growth Strengthens and Inflation Stays Low

RBI Repo Rate Cut to 5.25% Sparks Market Rally as Rupee Gains and Bond Yields Fall After Strong Growth Forecast

The Reserve Bank of India announced a fresh RBI repo rate cut of 25 basis points. The new rate now stands at 5.25%. The Monetary Policy Committee took this decision during its 3 to 5 December meeting. All six members supported the move. The committee also kept its stance neutral to stay flexible in the coming months.

RBI Sees Strong Growth Outlook

Governor Sanjay Malhotra said the Indian economy is moving through a rare Goldilocks zone. Growth remains strong, and inflation stays very low. This creates room for a softer rate. The governor said the economy shows steady strength despite global challenges.

The RBI lifted its GDP growth forecast for FY26 to 7.3%. The earlier estimate was 6.8%. The inflation forecast for FY26 dropped to 2.0%. These numbers gave the central bank confidence to cut the rate. The new projections suggest stable prices and firm local demand.

Financial markets reacted quickly. The rupee gained after the announcement, and bond yields fell. The RBI also announced liquidity steps. These include Rs. 1 lakh crore in OMO purchases and a $5 billion dollar-rupee swap in December. These actions aim to keep money flowing smoothly in the system.

Many economists had expected a cut. A Bloomberg survey showed this trend. Still, the rupee’s earlier fall made some think the RBI might pause. The central bank chose easing because inflation stayed far below the 4% target. Growth also stayed stronger than expected.

Impact on Loans and Banking System

Policy rates linked to the repo also changed. The standing deposit facility rate now stands at 5.25%. The marginal standing facility and bank rate stand at 5.75%. These changes help guide short-term interest rates across the banking system.

Experts said the Federal Reserve’s likely rate cut in December will support the rupee. This keeps the interest gap stable. The RBI is expected to use more liquidity tools in the next few months instead of frequent rate cuts.

The new rate supports loans and credit. EMIs may fall gradually as banks adjust rates. Deposit returns may soften as well. The RBI aims to keep borrowing affordable, boost demand, and hold inflation in check.

The latest RBI repo rate cut sets the direction for the next phase of India’s growth story. The central bank wants strong activity without high prices. The Goldilocks zone approach shows this balance. Markets will now watch the next MPC meeting for further signals.