RBI cuts repo rate 25 bps to 5.25%, keeps stance neutral as inflation eases

Low inflation and strong economic growth mean Indian economy is in a 'rare Goldilocks' period, says RBI Governor

The Reserve Bank of India (RBI) cut its key repo rate by 25 basis points on Friday, saying the inflation outlook gave it space to support the economy in a “rare goldilocks” period.

 

The six-member monetary policy committee (MPC) voted unanimously to lower the repo rate to 5.25 per cent, in line with a consensus view, and maintained a “neutral” stance. The central bank has now cut rates by a total of 125 basis points since February 2025. It held rates in August and October.

 

“…the growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum. Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 bps to 5.25 per cent,” RBI Governor Sanjay Malhotra, said in a video statement.

 

The Indian economy is facing a "rare goldilocks" period, he said.  ALSO READ | RBI MPC Meeting LIVE Updates

 

The RBI will conduct an open market operation (OMO) purchase auction worth Rs 1 trillion of government securities, and a three-year buy/sell swaps of $5 billion of the US dollar and the rupee. “I would like to reiterate that we are committed to provide sufficient durable liquidity to the banking system. We continuously assess the durable liquidity requirements of the banking system due to changes in currency in circulation, forex operations and reserve maintenance. Going forward too, we shall continue to do so,” Malhotra said.

 

“These measures will ensure adequate durable liquidity in the system and further facilitate monetary transmission,” he said.

 

Malhotra said the global economy is holding up better than expected, though the earlier frontloading of trade is showing signs of normalising. Uncertainty has eased somewhat following the end of the US government shutdown and progress on trade agreements, yet it remains elevated.

 

The US dollar strengthened primarily on safe-haven demand while treasury yields remained rangebound. Equity markets remain volatile, driven by shifting views on the monetary policy outlook and concerns surrounding stretched valuations in technology stocks, he added.

 

Consequently, government bond yields softened by around four basis points, with the benchmark 10-year government bond trading at 6.48 per cent.

 

The RBI revised its inflation forecast for FY26 to 2 per cent, down from 2.6 per cent projected in October, citing a continued decline in food prices and headline inflation remaining well below the target.

 

It revised the growth forecast for FY26 to 7.3 per cent, against 6.8 per cent projected in October.

 

Headline consumer price index (CPI) inflation declined to an all-time low in October 2025. The faster-than-anticipated decline in inflation was led by a correction in food prices, contrary to the usual trend witnessed during September and October. Core inflation (CPI headline excluding food and fuel) remained largely contained in September and October, despite continued price pressures from precious metals. Excluding gold, core inflation moderated to 2.6 per cent in October. Overall, the decline in inflation has become more generalised.