India Business Journal - RBI delivers a surprise Repo Rate cut of 25 bps, pegs FY26 inflation at 2%

MONEY

RBI delivers a surprise Repo Rate cut of 25 bps, pegs FY26 inflation at 2%

IBJ Bureau
Dec 06, 2025

The Reserve Bank of India (RBI) has slashed its Repo Rate by 25 basis points (bps) from 5.50 to 5.25 per cent. Announcing the Repo Rate cut, RBI Governor Sanjay Malhotra has said the central bank will focus on measures to bolster growth. He also downplayed concerns about the rupee’s slump.

The decision was taken unanimously after a three-day meeting of the RBI’'s Monetary Policy Committee (MPC), held every two months to decide the central bank’s strategy, as it weighs record low inflation against a falling rupee that hit its lowest on Thursday.

The MPC had earlier reduced the key lending rate in June from 6 to 5.50 per cent in view of a softening inflation. A cut in the Repo Rate is expected to translate into cheaper housing and vehicle loans for retail borrowers.

The RBI expects retail inflation to be softer than its earlier projection, with underlying inflation pressures being lower than the headline estimates. Consumer Price Index (CPI) inflation, or retail inflation, has been projected downwards at 2 per cent for FY26.

The RBI has also sharply raised the Gross Domestic Product (GDP) forecast for the current financial year to 7.3 per cent from its earlier estimate of 6.8 per cent. The GDP forecast for the current quarter (Q3, October-December) is also higher at 6.7 per cent than the earlier 6.4 per cent estimate. The Q2FY26 quarter had recorded a six-quarter high GDP growth of 8.2 per cent.

A decision has also been taken to conduct foreign exchange swaps and buy bonds worth Rs 1 lakh crore via Open Market Operation (OMO) auctions, hoping that these would facilitate monetary transmission and provide sufficient liquidity.