The Reserve Bank of India (RBI) cut the repo rate by 25 basis points on Friday, delivering a widely expected reduction as policymakers sought to support growth amid easing inflationary pressures.
The Monetary Policy Committee (MPC) voted unanimously to lower the interest rate to 5.25% from 5.50%, maintaining its policy stance at 'neutral', indicating room to respond to evolving macroeconomic conditions.
Governor Sanjay Malhotra said inflation has "declined significantly" and is likely to be softer than previous expectations, with broader declines in core price pressures across sectors.
The Reserve Bank of India has lowered its consumer inflation forecast for fiscal year 26 to 2% from 2.6% previously.
The central bank also expressed confidence in the momentum of the economy, expecting real GDP growth of 7% in the third quarter of fiscal year 26, 6.5% in the fourth quarter, and 7.3% for fiscal year 26, a slight increase from the previous estimate of 6.8%.
The update came after official data showed the economy grew by 8.2% in the July-September quarter - the fastest in 18 months - supported by strong consumption, improved manufacturing, and an increase in private investment.
In addition to lowering the interest rate, the central bank announced measures to support liquidity, including up to ₹1 trillion in open market operations (OMOs) and a $5 billion dollar-rupee swap to ensure smooth credit flows and stability in bond markets.
However, Malhotra warned that external uncertainties pose downside risks, pointing to pockets of weakness in some leading indicators.
Governor Malhotra described the current macroeconomic conditions as a rare "golden" moment, citing healthy GDP growth, severe disinflationary pressures, and stable demand - even as the rupee temporarily slipped to record low levels.
