RBI Cuts Repo Rate to 5.25%, Elevates FY26 GDP Growth Forecast to 7.3%

RBI Unanimously Votes for Rate Cut

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) concluded its latest meeting on December 5, 2025, with a unanimous decision to reduce the benchmark repo rate by 25 basis points. This adjustment brings the key lending rate down to 5.25% from its previous level of 5.50%. This marks the fourth rate cut in the current easing cycle of 2025, bringing the cumulative reduction to 125 basis points for the year.

Upward Revision in GDP Forecast Amidst Benign Inflation

In a significant move reflecting confidence in the nation's economic trajectory, the MPC also revised India's Gross Domestic Product (GDP) growth projection for the fiscal year 2025-26 (FY26) upwards to 7.3%. This is an increase from the earlier estimate of 6.8%.

The decision to cut rates and raise the growth forecast comes against a backdrop of favorable economic indicators. Retail inflation, measured by the Consumer Price Index (CPI), dropped to a record low of 0.25% in October, significantly below the RBI's target range. For FY26, the CPI inflation forecast has been further lowered to 2%, down from the previous projection of 2.6%.

Policy Stance and Additional Measures

The MPC opted to maintain a 'neutral' policy stance, indicating flexibility to adjust rates in either direction based on evolving economic conditions.

RBI Governor Sanjay Malhotra, addressing the press, highlighted the 'Goldilocks period' the Indian economy is experiencing, characterized by high growth and low inflation. He stated, 'Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience.'

Beyond the rate cut, the central bank announced additional liquidity measures, including:

• Open Market Operations (OMO) purchases of Government Securities amounting to ₹1 lakh crore.
• 3-year USD/INR buy-sell swaps of $5 billion to be conducted in December.

These measures aim to inject liquidity into the banking system and support the overall economic momentum.

Market Reaction and Future Outlook

The announcements were largely anticipated by market analysts, with many economists expecting a rate cut given the sustained low inflation and robust growth. The Indian stock market, including the Sensex and Nifty 50, saw a positive reaction, trading higher following the RBI's policy decision.

Experts suggest that the current economic conditions provide ample scope for continued monetary support, with some not ruling out further rate cuts in the future if inflation remains benign.