The Reserve Bank of India (RBI) on Thursday announced a 25-basis-point reduction in the key policy lending rate, bringing the repo rate down to 5.25%. With this move, the cumulative cuts in 2025 now stand at 125 basis points. The decision followed a three-day meeting of the Monetary Policy Committee (MPC) and comes at a time when inflation has cooled, and economic growth remains stable, giving the central bank room to support demand without jeopardising price control. The revised structure also lowers the Standing Deposit Facility (SDF) rate to 5%, while the Marginal Standing Facility (MSF) rate and the bank rate are now positioned at 5.5%. The policy stance remains neutral.
Governor Sanjay Malhotra noted that the MPC reached the decision unanimously after examining fresh macroeconomic indicators on prices, liquidity and growth. He said the 25-basis-point cut was justified by the continued softening of inflation and the confidence that economic activity remains strong enough to absorb the policy support. To reinforce financial stability, Malhotra also unveiled additional liquidity measures —the RBI will conduct open market purchases (OMOs) of government securities worth ₹1 lakh crore and a three-year USD/INR buy-sell swap of USD 5 billion during December to ensure durable liquidity in the system.
Explaining the rationale behind the policy easing, the Governor said the inflation outlook has strengthened considerably and is projected to remain favourable in the coming quarters. Both headline and core inflation are expected to stay near or below 4% in the first half of the next financial year. Malhotra pointed out that the current CPI figure is somewhat overstated due to the jump in precious metal prices, which alone accounts for roughly 50 basis points of headline inflation—suggesting underlying price pressures are even softer.
On growth, the RBI expects the economy to hold its resilience, although some moderation is likely from the exceptionally strong expansion recorded earlier in the year. According to Malhotra, the combination of easing inflation and stable growth provided the MPC with sufficient room to shift policy in support of financial conditions. The central bank’s view is that maintaining favourable borrowing costs will help sustain consumption and investment momentum without threatening price stability.
With inflation at multi-year lows and the economy outperforming expectations through 2025, the RBI’s latest policy action aims to reinforce stability and ensure that financing conditions remain conducive for households and businesses in the months ahead.
