RBI breaks its long freeze on repo rate, drops it to 5.25 per cent

MUMBAI: The Reserve Bank of India has cut its repo rate by 25 basis points to 5.25 per cent, with governor Sanjay Malhotra signalling a clear tilt towards growth as the central bank downplayed concerns over the rupee’s recent slide.

The rate move, decided unanimously after a three-day meeting of the monetary policy committee (MPC), follows June’s reduction from 6 per cent to 5.5 per cent. The RBI expects banks to pass on the cheaper money, easing housing and vehicle loan costs for borrowers.  

Inflation remains subdued. The bank has pared its retail-inflation forecast for FY2025-26 to 2 per cent, citing softer underlying pressures. For the first quarter of FY2026-27, Consumer Price Index (CPI) is projected at 3.9 per cent, down from an earlier 4.5 per cent, though rising precious-metal prices could nudge the headline figure higher.

Growth, meanwhile, is accelerating. The RBI now pegs GDP expansion for the current financial year at 7.3 per cent, up from 6.8 per cent, after the economy logged an 8.2 per cent leap last quarter: the fastest in six quarters. The forecast for the October–December period has also been revised upwards to 6.7 per cent.

Alongside the repo cut, the MPC lowered the standing deposit facility rate to 5 per cent and the marginal standing facility to 5.5 per cent. The RBI will also conduct forex swaps and buy Rs 1 lakh crore of bonds via open-market operations to smooth liquidity and aid transmission.

Malhotra said 2025 had delivered “robust growth and benign inflation” despite geopolitical and trade headwinds. With a neutral stance, the RBI enters 2026, he said, with “hope, vigour and determination”, buoyed by firm bank balance-sheets and steady retail credit growth.