Mumbai: In a significant policy move aimed at balancing India’s rapid economic expansion with emerging currency concerns, the Reserve Bank of India on Thursday reduced the repo rate by 25 basis points, bringing it down to 5.25%, while retaining its Neutral monetary stance.
The decision came at the conclusion of the three-day Monetary Policy Committee (MPC) meeting, chaired by RBI Governor Sanjay Malhotra, held between December 3 and 5, marking the fifth bi-monthly review of FY26.
The policy announcement arrives at a time when India’s growth momentum remains strong, inflation has eased to multi-year lows, yet the rupee continues to hover near 90 per US dollar, creating an unusual mix of optimism and caution for policymakers.
Balancing Growth and Currency Pressure
RBI officials noted that while the domestic inflation trajectory is expected to remain under control in the coming months, the weakening rupee is a key factor requiring close attention. Despite differing views within the MPC, the central bank opted for a forward-leaning stance—supporting growth through rate easing, while signalling vigilance on external sector risks.
This cut adds to the 100 basis points of reductions already implemented across three earlier MPC meetings this year, showcasing the central bank’s intent to create a low-rate environment to support borrowing, consumption and investments.
Backdrop to the Decision
During the previous October policy review, the MPC had:
- held the repo rate at 5.50%
- continued with a Neutral stance
- revised FY26 GDP growth from 6.5% to 6.8%
- brought down the FY26 CPI inflation projection from 3.1% to 2.6%
The fresh 25 bps rate cut aligns with the RBI’s broader strategy of nurturing economic recovery while ensuring inflation stays comfortably within target ranges.
