RBI Retains 6.5% GDP Growth Forecast for FY26, Cuts Repo Rate to 3-Year Low of 5.5%

Mumbai: In a significant move aimed at balancing growth and inflation, Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday announced that the central bank has retained the real GDP growth projection at 6.5% for the fiscal year 2025–26, while also delivering a surprise 50 basis point cut in the repo rate, bringing it down to 5.5% — the lowest in three years.

The announcements came at the conclusion of the three-day Monetary Policy Committee (MPC) meeting, where top RBI officials reviewed domestic and global economic conditions.

“Real GDP growth rate for this year, 2025-2026, is projected at 6.5 per cent, continuing with our earlier forecast, with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.4 per cent. The risks are evenly balanced,” Governor Malhotra said during the policy briefing.

The RBI also lowered its inflation forecast to 3.7% for FY26, down from the earlier estimate of 4%. The central bank attributed the downward revision to the expectation of a favorable monsoon, which is likely to stabilize food prices and improve overall consumer sentiment.

The repo rate cut marks the second reduction this year, following a 25 bps cut in April, and is seen as a bold step by the RBI to stimulate credit growth amid slowing economic momentum. India’s growth had decelerated to a four-year low of 6.5% in FY25, prompting calls for monetary easing.

With the new cut, the key lending rate now stands at its lowest since August 2022, when it last touched 5.40%. The repo rate — the rate at which the RBI lends to commercial banks — serves as the benchmark for setting interest rates on loans and deposits across the banking system.

Economists say the move will likely bring relief to retail and corporate borrowers, as banks are expected to lower lending rates on home loans, auto loans, and business credit.