RBI MPC cuts repo rate by 25 bps to 5.25%, projects FY26 growth at 7.3%

The RBI MPC revised its inflation forecast downward from 2.6 per cent to 2 per cent in the December meeting

The Reserve Bank of India's (RBIs) Monetary Policy Committee (MPC) on Friday unanimously reduced the repo rate by 25 basis points to 5.25 per cent from 5.5 per cent with immediate effect, announced Governor Sanjay Malhotra. The latest rate cut comes after a pause during the last two policy meetings.

 

The MPC had previously cut the repo rate by 100 basis points (bps) in three consecutive cuts since February, bringing it down from 6.5 per cent in February to 5.5 per cent in June. One basis point is a hundredth of a percentage point.

 

"Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience. It is poised to register high growth. The headroom provided by the inflation outlook has allowed us to remain growth supported," Malhotra said.

 

In its December policy meeting, which took place between December 3-5, the committee continued with the 'neutral' stance. Additionally, the standing deposit facility (SDF) rate was adjusted to 5.00 per cent and the marginal standing facility (MSF) rate and the bank rate were set at 5.50 per cent.  ALSO READ | RBI MPC Meeting LIVE Updates

Growth projection revised upwards

The RBI Governor said that global uncertainty is still a big risk for the economy, but the finalisation of ongoing trade and investment talks with different countries could help the economy grow further. "External uncertainties continue to boost downside risks to the outlook, while speedy conclusion of various ongoing trade and investment negotiations with the government is undertaken with various countries and jurisdictions present upside potential," Malhotra said.

 

The rate-setting body revised its growth forecast for FY26 upward to 7.3 per cent from 6.8 per cent. The quarterly growth forecasts are:

• Q3 FY26: 7.0 per cent
• Q4 FY26: 6.5 per cent
• Q1 FY27: 6.7 per cent
• Q2 FY27: 6.8 per cent

Inflation forecast lowered

Noting that the headline CPI inflation declined to an all-time low in October 2025, the RBI Governor said, "Food supply prospects have improved on the back of higher kharif production, healthy rabi sowing, adequate reservoir levels and conducive soil moisture. Barring some metals, international commodity prices are likely to moderate going forward. Overall, inflation is likely to be softer than what was projected in October, mainly on account of the fall in food prices."

 

The MPC revised its inflation forecast downward from 2.6 per cent to 2 per cent. The quarterly inflation forecasts are:

• Q3 FY26: 0.6 per cent
• Q4 FY26: 2.9 per cent
• Q1 FY27: 3.9 per cent  
• Q2 FY27: 4.0 per cent

Commenting on the rate cut, Anshuman Magazine, chairman and chief executive (India, South-East Asia, Middle East & Africa), CBRE, said, "The RBI MPC's decision to slash the repo rate by 25 basis points reflects its focus on improving the consumption in the economy. This is likely to push the banks to transmit previous rate cuts more aggressively and shift towards a more growth-supportive stance. For real estate, this is expected to boost the demand and strengthen investment sentiment across segments. For home loan borrowers, this might bring tangible relief as floating-rate EMIs will ease."

 

The next meeting of the MPC is scheduled from February 4 to 6, 2026.