- MPC delivers a 25 bps rate cut with neutral stance amid historic disinflation and improving economic momentum
- Retail inflation drops to 0.25%, giving policy space for stimulus; GDP growth upgraded sharply for FY26
- Lower costs expected to ease loan burden for housing, auto and commercial segments despite rupee weakness
- Economists say decision reflects confidence-driven, forward-looking support for India’s growth cycle
NE BUSINESS BUREAU
MUMBAI, DEC 5
The Reserve Bank of India (RBI) cut the key policy rate by 25 basis points to 5.25 per cent, with the Monetary Policy Committee (MPC) unanimously voting for the reduction while maintaining a neutral policy stance. Governor Sanjay Malhotra said record-low retail inflation created room to support growth, as the central bank revised India’s FY2026 real GDP growth projection upward—from 6.8 per cent to 7.3 per cent—while lowering the inflation outlook to 2 per cent, compared with the earlier 2.6 per cent.
Calling the rare combination of easing inflation and 8 per cent GDP growth in the first half of the fiscal a “goldilocks” phase, Malhotra said October witnessed rapid disinflation. “Growth-inflation balance on both headline and core inflation continued to provide policy space for growth,” he noted.
Samantak Das, Chief Economist and Head – Research and REIS, India, JLL, said, “This is not a reactive measure to a slowdown, but a confident and forward-looking deployment of monetary space to deliver a structural stimulus, ensuring the nation’s growth engine becomes more inclusive.”
Property developers and market leaders welcomed the move. Mahendra Nagaraj, Vice President of M5 Mahendra Group, said, “The Reserve Bank of India’s decision to reduce the repo rate to 5.25 per cent is a timely move that will deliver significant benefits to the housing and real estate sector.”
Ramani Sastri, Chairman and MD of Sterling Developers, added, “The rate cut would also strengthen market confidence and also act as a strong signal of policy support for the real estate sector and the broader economy. However, for the intended benefits to materialise, the transmission of the reduced rates must also be faster.”
The rate cut comes at a time when the economy clocked 8.2 per cent GDP growth in Q2, a six-quarter high. Advances—including housing, auto and commercial loans—are expected to become cheaper following the monetary easing.
RBI announced the fifth bi-monthly monetary policy amid sharply easing retail inflation. CPI-based headline inflation has remained below the government-mandated 2 per cent lower band for the last three months. Retail inflation fell to a historic 0.25 per cent in October 2025, the lowest since the introduction of the CPI series.
However, the rupee weakened to a historic low, crossing ₹90 per USD earlier this week. The currency has depreciated nearly 5 per cent since the beginning of the year, raising concerns about future import-driven inflation.
Despite this, the MPC expressed confidence that the current account deficit will remain “modest” during the fiscal year. Governor Malhotra said India’s foreign exchange reserves, at $686 billion, remain strong enough to cover 11 months of imports.
The RBI has previously reduced the repo rate by 25 bps each in February and April, and by 50 bps in June, tracking a sustained softening in retail inflation. With CPI printing below 4 per cent since February, driven by easing food prices and a favourable base effect, policymakers opted for another calibrated reduction to reinforce growth.
