In a significant policy shift aimed at supporting growth and easing financial conditions, the Reserve Bank of India (RBI) on Friday cut the repo rate by 25 basis points to 5.25%. The Monetary Policy Committee (MPC) also retained its neutral stance, signalling balanced priorities between inflation and growth.
Announcing the decision, RBI Governor Sanjay Malhotra said the Indian economy is experiencing a “rare Goldilocks moment”, with Q2 GDP expanding 8.2% and inflation falling to “significant lows” after an extended period of deflationary trends.
As part of a major liquidity push, the central bank also said it will undertake Open Market Operations (OMO) purchases worth ₹1 lakh crore and execute a 3-year dollar–rupee buy-sell swap of $5 billion during December. Together, these moves are expected to infuse ₹1.45 lakh crore into the banking system.
_"The MPC's calibration of the Bank Rate to 5.50% is a necessary insulation against a fracturing global order. We are witnessing a classic "decoupling": domestic supply and demand are robust—evident in 8.2% growth and rural recovery—yet the external sector is flashing red. The widening trade deficit to $41.7 billion in October is not just a cyclical blip; it is a structural wound caused by geopolitical crosses that are dismantling traditional supply chains and suppressing external demand._
_This imbalance places severe pressure on the Rupee. With FPI outflows and a record import bill, the currency faces depreciation risks that interest rate differentials alone cannot manage. While the RBI's $5 billion swap provides temporary liquidity cover, it is not a cure._
_The real solution lies in the "upside potential" of trade negotiations referenced by the Governor. This is where the India-Russia corridor becomes macro-critical. By operationalizing rupee-denominated trade, we can bypass the dollar-dependency that is currently aggravating our deficit. Shifting our export geography to Russia doesn't just balance the books; it structurally hedges our economy against the geopolitical volatility weighing down Western markets."_
- Mr. Suketu Thanawala, StraCon Business Advisory & Consulting Firm.
Mr. Srinivasan Vaidyanathan, Operating Partner, Essar Capital
"The RBI's rate cut to 5.25% reinforces confidence in India's growth trajectory and strengthens sentiment across capital markets. With GDP now projected at 7.3% and liquidity-boosting measures announced, the policy creates a favourable environment for both domestic and foreign investors to deploy capital into India's long-term growth sectors. Lower borrowing costs and macro stability will further accelerate private investment, even as global uncertainties persist."
Pankaj Kalra, CEO, Essar Oil and Gas Exploration and Production Limited
"The RBI's 25 bps rate cut and neutral stance strengthen confidence in India's economic momentum. A stronger growth outlook and supportive financial conditions will enable the energy sector to invest more confidently in domestic capacity and cleaner fuels. This policy stability reinforces India's path toward a more secure and sustainable energy future."
Ashish Rajgarhia, Executive Director, Essar Ports
"The RBI's rate cut provides timely support for India's infrastructure and logistics ecosystem. With stronger growth projections and improved financing conditions, there is now an even greater momentum to accelerate development, enhance efficiency, and strengthen connectivity across the country's supply chains."
GDP Forecasts Up, Inflation Estimates Cut
Alongside the rate cut, the RBI sharply upgraded its growth outlook.
FY26 GDP growth has been raised to 7.3%, up from 6.8% projected earlier.
Growth for Q1 FY27 is projected at 6.7%, and Q2 FY27 at 6.8%.
On inflation, the MPC noted that both headline and core inflation are now on track to remain close to the 4% target through the first half of FY27. Exceptionally soft food prices have contributed to a downward revision in projections for FY26 and early FY27.
The RBI now estimates:
FY26 inflation: 2.0% (earlier 2.6%)
Q4 FY26: 2.9% (earlier 4.0%)
Q1 FY27: 3.9%
Q2 FY27: 4%
Parijat Agrawal, Head of Fixed Income at Union Asset Management Company Private Limited
"The MPC (Monetary Policy Committee) cut the repo rate by 25bps along with durable liquidity measures which augur well for overall economic growth. The lower inflation numbers provide room for MPC to remain focussed on pro-growth measures. The favourable inflation outlook, which is below the RBI's comfort zone, alongside relatively lower GDP projections for the upcoming year than the previous fiscal and lower high frequency leading indicators leave some space for additional rate cuts going ahead."
Liquidity & External Sector
Governor Malhotra said liquidity conditions warrant a proactive response, prompting the OMO purchase and FX swap.
India’s foreign exchange reserves stood at $686 billion as of November 28, slightly lower than the previous week. Services exports remain strong, although merchandise exports continue to face pressure from global headwinds.
The current account deficit narrowed to 1.3% of GDP in Q2 FY25 from 2.2% a quarter earlier.
Market Context
The rate cut comes at a time when the Indian rupee had recently touched a lifetime low of 90 per dollar, prompting markets to watch closely for RBI’s intervention strategy. The rupee recovered to 89.80 ahead of the policy announcement.
Economists were split ahead of the decision—half expecting a pause and half expecting a 25 bps cut—reflecting the unusual combination of strong growth and rapidly easing inflation.
With today’s move, the RBI has cut rates by 125 basis points in 2025, after holding rates steady in August and October.
