RBI Monetary Policy: Repo Rate Cut by 25 bps; Revised GDP and Inflation Estimates ReleasedRBI Monetary Policy: Repo Rate Cut by 25 bps; Revised GDP and Inflation Estimates Released

RBI monetary policy: In an unexpected decision, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) on Friday unanimously reduced the repo rate by 25 basis points to 5.25%, maintaining a neutral stance. Governor Sanjay Malhotra cited record-low inflation and robust economic growth as reasons behind the move. A basis point equals 0.01%.

RBI MPC: Key Highlights

1. Repo Rate Falls to 5.25%

The MPC highlighted strong GDP growth of 8% in H1FY26, calling it a rare “Goldilocks” period of balanced growth and low inflation.

“We are going by whatever are the high frequency indicators that we track. So it’s basis that that we feel that the growth that has been about 8% in H1 will not be of the same order,” said RBI governor Sanjay Malhotra.

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2. Liquidity Rates Adjusted

• Standing Deposit Facility (SDF): Reduced to 5% from 5.25%.
  
• Marginal Standing Facility (MSF): Set at 5.50% for emergency borrowing.
  These adjustments help guide borrowing costs across the banking system after the rate cut.

3. GDP Growth Forecast Upgraded

The RBI revised its FY26 GDP growth forecast to 7.3% (from 6.8%). Quarterly estimates were also increased:

• Q3FY26: 7% (from 6.4%)
  
• Q4FY26: 6.5% (from 6.2%)
  
• Q1FY27: 6.7% (from 6.4%)
  For Q2FY27, growth is expected at 6.8%.

“Looking ahead, domestic factors such as healthy agricultural prospects, continued impact of GST rationalisation, benign inflation, healthy balance sheets of corporates and financial institutions and congenial monetary and financial conditions should continue to support economic activity. Continuing reform initiatives would further facilitate growth,” said Governor Malhotra.

4. Inflation Forecast Lowered

FY26 CPI inflation forecast was cut to 2% (from 2.6%), with quarterly revisions as follows:

• Q3FY26: 0.6% (from 1.8%)
  
• Q4FY26: 2.9% (from 4%)
  
• Q1FY27: 3.9% (from 4.5%)
  Retail inflation is expected at 4% in Q2FY27.

“The MPC noted that headline inflation has eased significantly and is likely to be softer than the earlier projections, primarily on account of the exceptionally benign food prices,” said the RBI Governor.

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5. Liquidity Infusion via OMO and USD/INR Swap

The RBI plans ₹1 trillion in open market operations (OMO) purchases and a three-year USD/INR buy-sell swap of $5 billion in December to ensure durable liquidity.

6. Two-Month RBI Grievance Campaign

Starting January, the RBI will address complaints pending for over a month with the RBI Ombudsman, aiming to reduce a backlog caused by rising grievance volumes.

“We propose to hold a two-month campaign from 1st January next year with an aim to resolve all grievances pending for more than a month with the RBI Ombudsman. I elicit the support of all regulated entities in this endeavour,” said the RBI Governor.

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