RBI cuts repo rate by 25bps to 5.25% amid low inflation; loans to get cheaper

The Reserve Bank of India (RBI) on Friday cut key benchmark interest rate for the first time in six months and took steps to boost liquidity to support a “goldilocks” economy in the face of high US tariffs.

The monetary policy committee, led by RBI Governor Sanjay Malhotra, voted unanimously to lower the repo rate by 25 basis points to 5.25 per cent and retained a neutral stance, which give room for further rate cuts.

The move follows a phase of strong macroeconomic performance supported by robust GDP growth of 8.2 per cent in the second quarter of the current financial year and low levels of inflation.

The RBI also seemed to have shrugged off concerns over fall in the rupee, which breached 90 to a dollar this week. The currency is down almost 5 per cent against the dollar this year, the worst performer in Asia.

This is the fourth rate cut by the central bank since February 2025. It held rates in August and October bimonthly monetary policy meetings.

Based on the recommendation of the MPC, the RBI reduced repo rate by 25 basis points each in February and April, and 50 basis points in June amid easing retail inflation.

“Inflation at a benign 2.2 per cent and growth at 8 per cent in first half of FY26 present a rare goldilocks period,” Malhotra said while announcing the monetary policy decisions.

He added that the RBI would continue to meet the productive requirements of the economy in a proactive manner while ensuring macroeconomic stability. Indian exports have plunged after US President Donald Trump slapped a 50 per cent tariff on goods from the country.

The RBI will conduct open market operations of Rs 1 lakh crore to buy bonds this month and another $5 billion in forex swaps to add liquidity to the banking system and speed up transmission of lower rates.

Commenting on the RBI decisions, Radhika Rao, Executive Director and Senior Economist at DBS Bank, said the central bank delivered on most fronts on Friday, lowering rates as per expectations and taking pro-liquidity steps, as well as measures to prevent a re-hardening in borrowing costs.

Anitha Rangan, chief economist, RBL Bank, said, “While the repo cut does put pressure on the currency front, forex swap suggests that the RBI is cognisant of currency pressures.”