Mumbai: In a closely watched policy move, the RBI on Thursday cut the repo rate by 25 bps to 5.25%, even as it maintained its monetary policy stance as “neutral.” The decision comes against the backdrop of slowing inflation, easing manufacturing momentum, and mounting currency pressures. The MPC meeting, held at 10 a.m., also saw the central bank revise its FY26 real GDP growth projection to 7.3%, up from 6.8% earlier, citing resilience in domestic demand despite global uncertainties.
The RBI flagged that external headwinds, including volatile commodity prices, weak global growth, and geopolitical risks, continue to pose downside risks to India’s growth outlook.
India’s economic landscape has recently shown a complex mix of strengths and challenges:
- The previous quarter’s 8.2% real GDP growth contrasts sharply with nominal GDP at just 8.7%, well below Union Budget assumptions of 10%. This mismatch may constrain tax revenue growth and complicate fiscal calculations.
- Inflation indicators have softened dramatically, with CPI at 0.25% and WPI near stall levels, creating significant policy space for rate cuts.
- The real interest rate remains elevated as the repo rate (pre-cut) stood at 5.5%, far above inflation. At the same time, manufacturing PMI slipped to 56.6 in Nov, the weakest in nine months.
- The INR remains under pressure amid FPI outflows, promoter selling, tepid FDI inflows, and global tariff concerns. This limited RBI’s room for aggressive easing.
What RBI Did and Why
Despite divided economist polls, the central bank aligned with expectations of moderate easing. With inflation far below the 4% ±2% tolerance band, the 25 bps cut aims to support economic momentum and revive nominal GDP growth toward double digits.
The RBI reiterated that it does not target any specific INR level, but will intervene to curb volatility and ensure orderly currency movements.
No changes were announced in CRR or SLR, although the central bank signaled that it may deploy OMOs or liquidity tools to manage short-term market tightness.
What the Market Will Watch
Beyond the rate cut, investors will parse Governor Shaktikanta Das’s statement for forward guidance, particularly on the sustainability of disinflation, the outlook for further easing, and the central bank’s comfort with India’s growth trajectory in a turbulent global environment.
The RBI has now cut rates by 100 bps since February, with lending and deposit rates adjusting steadily but partially. Today’s move reinforces its priority: sustaining growth without compromising financial stability.
