RBI MPC Panel Cuts Repo Rates By 25 Bps Amidst Low Inflation, Depreciating Rupee, And Strong GDP

The Reserve Bank of India's Monetary Policy Committee (MPC) announced its final decision on key rates today. The MPC, chaired by Governor Sanjay Malhotra, decided to reduce the repo rates by 25 bps to 5.25 per cent.

The Standing Deposit Facility now stands at 5 per cent, while the Marginal Standing Facility and bank rate have been revised to 5.5 per cent. 

With inflation muted and growth at a six‑quarter high, pressure is building, but the RBI was expected to still choose caution over action. The panel not only unanimously slashed the key rates, but also continued to adopt a 'neutral' stance on the economy.

Sanjay Malhotra said, “The MPC also decided to continue with a neutral stance. In view of evolving liquidity conditions, the Reserve Bank will conduct OMO purchases of government securities worth Rs 1 lakh crore and a three‑year rupee buy-sell swap of 5 billion US dollars this December to inject durable liquidity into the system. The MPC noted that headline inflation has eased significantly and is likely to remain softer than earlier projections.”

The MPC began its three‑day deliberations on Wednesday at a defining moment for the economy. India’s growth accelerated to its fastest pace in six quarters, while inflation  eased to the lowest monthly reading on record. This rare combination  prompted renewed market speculation that the RBI might resume monetary easing after holding rates steady for four consecutive meetings.

GDP

Further, the panel decided to also upgrade its GDP estimates for the current fiscal year. The governor announced that GDP forecast for FY2025-26 now stood at 7.3 per cent, up by about half a per cent. He also shared the growth projections for the Q3 at 7 per cent and Q4 at 6.5 per cent in the current fiscal year.

For the first quarter of the upcoming 2026-27 fiscal year year, the GDP is estimated at 6.7 per cent and at 6.8 per cent for the second quarter.

Inflation

The MPC slashed its inflation estimates for FY26 by 0.6 per cent to 2 per cent. The inflation projections for Q3 and Q4 in the current fiscal now stand at 0.6 per cent and 2.9 per cent respectively. The inflation forecast for Q1 and Q2 in FY27 is at 3.9 per cent and 4 per cent respectively.

At its October review, the MPC kept the repo rate unchanged at 5.5 per cent, with Governor Sanjay Malhotra noting that inflation had "moderated sharply", providing comfort but not yet enough reason to shift stance.

The December meeting, however, arrived with a more favourable macro backdrop, raising expectations that a 25 bps rate cut might finally be on the table.