RBI cuts repo rate by 25 bps, lowers inflation forecast and raises growth outlook
Mumbai, Dec 5: The Reserve Bank of India (RBI) has decided to cut the policy interest rate (repo rate) by 0.25…
Mumbai, Dec 5: The Reserve Bank of India (RBI) has decided to cut the policy interest rate (repo rate) by 0.25 percentage points following the meeting of the Monetary Policy Committee (MPC). With this reduction, the repo rate has come down from 5.50% to 5.25%.
Earlier, the RBI had reduced the repo rate in February, April and June—three consecutive cuts. However, there was no change in the repo rate in the August and October policy reviews.
Out of the six MPC meetings held so far in the current calendar year, the RBI has reduced the repo rate in four. In total, the repo rate has been cut by 1.25% this year. The RBI’s latest move is expected to lower EMIs on home, car and other loans, providing significant relief to borrowers.
Rate cut based on assessment of changing macroeconomic conditions and outlook
RBI Governor Sanjay Malhotra said that before arriving at a unanimous decision to implement the rate cut immediately, the MPC carried out a detailed assessment of the evolving macroeconomic environment and future outlook. After this comprehensive analysis, the MPC voted unanimously to reduce the policy repo rate by 25 basis points to 5.25%, effective immediately.
The RBI has made major revisions to both inflation and growth projections for the current financial year—lowering the inflation estimate while adopting a more optimistic view on economic growth.
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Sharp reduction in inflation forecast
The RBI has revised the inflation forecast for the current financial year down to 2%, a reduction of 0.60 percentage points from its previous projection. In the October meeting, inflation was estimated at 2.6%, down from 3.1% earlier, indicating a consistent downward revision.
Quarter-wise inflation projections
• Q3: Revised to 0.6% from 1.8%
• Q4: Inflation expected at 2.9%, earlier estimated at 4%
• FY 2027 Q1: Reduced from 4.5% to 3.9%
• FY 2027 Q2: Inflation expected at 4%
Growth forecast raised above 7% for the first time
The RBI has taken a more optimistic stance on economic growth, raising the GDP growth projection for the current financial year to 7.3%, up from 6.8%. This is the first time the RBI has placed its growth estimate above 7%. Over the last two policy reviews, the RBI has raised growth projections by a total of 80 basis points.
Revised quarter-wise growth projections
• Q3: Increased from 6.4% to 7%
• Q4: Raised from 6.2% to 6.5%
• FY 2027 Q1: Increased from 6.4% to 6.7%
• FY 2027 Q2: Growth expected at 6.8%
Inflation has eased
According to the MPC, headline inflation has already moderated significantly and is likely to remain below earlier estimates. The main reason is the decline in food prices. Consequently, inflation projections for the current year and the first quarter of the next year have been lowered further.
Core inflation (which excludes volatile items such as food and fuel) had been rising last year but recorded a slight decrease in the second quarter of the current year. It is expected to remain stable going forward.
