MPC cuts rates; lifts FY26 growth outlook to 7.3% gdp growth.
With this move, Governor Sanjay Malhotra’s MPC has now cut the repo rate by 125 basis points across four meetings.
The Monetary Policy Committee (MPC) of the Reserve Bank of India delivered a significant policy move on Friday, December 5, 2025, voting unanimously to cut the benchmark repo rate by. The decision reflects a combination of strong domestic growth data and an unusually soft inflation environment—conditions that together opened a clear window for a supportive monetary push.
The rate cut follows fresh economic numbers showing India’s real Gross Domestic Product (GDP) growth jumping to 8.2% in the second quarter, signalling a strong economic pulse. At the same time, headline inflation averaged just 1.7%, dipping below the RBI’s lower tolerance threshold of 2% for the first time in several years. With the inflation target set at 4% (and a band of +/− 2%), the central bank found itself in a rare situation where inflation was too low rather than too high, giving policymakers more freedom to boost growth without fear of fuelling price pressures.
With this latest move, the MPC under Governor Sanjay Malhotra has now reduced the repo rate by a cumulative 125 basis points across four separate cuts since he assumed office on December 11, 2024. Malhotra’s tenure has so far reflected a pragmatic blend of caution and support—tempered when inflation was high but more accommodative now that price pressures have eased sharply.
Following the rate adjustment, the Standing Deposit Facility (SDF) rate under the liquidity adjustment facility (LAF) now stands at 5%, while the Marginal Standing Facility (MSF) rate and the Bank Rate move to 5.50%. The MPC also retained its neutral stance, signalling flexibility in either direction depending on how growth and inflation evolve in the coming months. In simple terms, future rate hikes or cuts remain equally possible.
In his statement accompanying the policy review, Governor Malhotra outlined the thinking behind the decision. He noted that headline inflation had “eased significantly” and was now likely to remain softer than earlier anticipated, largely because food prices—often the most volatile contributor—have stayed exceptionally subdued. Even underlying (core) inflation, typically more stubborn, has softened. Malhotra clarified that the recent rise in prices of precious metals had added about 50 basis points to inflation, but beyond that, overall price pressures were minimal.
He added that while India’s economic growth remained “resilient,” some moderation was expected. Even so, he said, the current balance between growth and inflation—especially the unexpectedly benign inflation outlook—provided the MPC with enough policy room to continue supporting the economy’s momentum through lower interest rates.
Reflecting confidence in sustained economic strength, the RBI raised its projection for real GDP growth in 2025–26 to 7.3%, an upward revision of 0.5 percentage points from its earlier estimate. The central bank expects growth to come in at 7% in Q3 and 6.5% in Q4 of the current financial year. Looking ahead to 2026–27, real GDP growth for Q1 is projected at 6.7%, and 6.8% for Q2, with risks described as “evenly balanced.”
The broader message from the policy announcement is clear: with inflation comfortably below the central bank’s target and growth firing on most cylinders, the MPC is choosing to use its policy space to ensure the economy keeps its footing in an uncertain global environment. The RBI’s stance signals confidence but not complacency—acknowledging strong domestic indicators while staying alert to potential volatility ahead.
For borrowers, banks, and businesses, the cut offers some breathing room and the possibility of cheaper credit in the weeks to come. For the broader economy, it underscores the RBI’s commitment to steering India through a phase of subdued inflation and steady expansion with a balanced, data-driven approach.