The Monetary Policy Committee (MPC) has cut the repo rate by 25 basis points to 5.25% and raised the GDP growth forecast to 7.3%, RBI Governor Sanjay Malhotra announced.
The Monetary Policy Committee (MPC) has cut the repo rate by 25 basis points to 5.25 per cent and raised the annual GDP growth forecast to 7.3 per cent, RBI Governor Sanjay Malhotra announced on Friday.
Malhotra said the MPC voted unanimously to cut the repo rate and maintain a neutral stance.
The repo rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks. Lower repo rate means cheaper borrowings and that in turns increases liquidity in the economy and boosts growth.
The low inflation at the moment —0.25 per cent in October— has allowed the MPC to reduce repo rate to further make room for growth. However, the neutral stance has indicated that the MPC can either tighten the rate, ease it further, or maintain it in the coming months.
The repo rate cut and raise in GDP growth forecast to 7.3 per cent from 6.8 per cent came days after data showed that India beat expectations to grow at 8.2 per cent in the July-September quarter on the back of strong manufacturing and services sector.
The MPC revised the 2026 retail inflation projection to 2 per cent from the previous projection of 2.6 per cent.
In the third quarter, inflation is projected to be 0.6 per cent compared to the previous 1.8 per cent, and it is expected to be 2.9 per cent in the fourth quarter as against 4 per cent, according to RBI Governor Malhotra.
Such low inflation is a result of “exceptionally benign food prices”, Malhotra said.
“Both headline and core inflation are expected to be at or below the 4 per cent mark during the first half of next year. The underlying inflation pressures are even lower as the impact of increased prices of precious metals on this inflation number is about 50 basis points. Growth while remaining resilient is expected to soften somewhat,” Malhotra said.
Additionally, the MPC adjusted the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) to 5 per cent and the marginal standing facility (MSF) and bank rate to 5.5 per cent.
The SDF is a tool with which the RBI absorbs excess liquidity without collateral. The SDF rate of 5 per cent means that banks can park their excess funds with the RBI without collateral and earn 5 per cent interest on it. The MSF rate refers to the rate at which the RBI lends ‘overnight’ emergency funds to banks. Raising this rate to 5.5 per cent makes such borrowings costlier and promotes fiscal discipline.
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