RBI monetary policy: A 25 bps rate cut; growth, inflation forecast revised— 5 key takeaways from RBI MPC outcome

RBI monetary policy: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) Friday decided unanimously to cut the repo rate by 25 basis points to 5.25%, maintaining a neutral stance. RBI governor Sanjay Malhotra announced the rate cut, highlighting record-low inflation.

A basis point is 0.01%.

The rate cut by the RBI MPC came as a surprise for many, as a majority of experts expected the central bank to maintain the status quo on rates in December. Nine out of 13 economists polled by Mint expected a pause in the repo rate; four had anticipated a 25-basis point cut.

Track RBI Monetary Policy 2025 Live Updates Here

RBI MPC Meeting: Key highlights

1. Repo rate falls to 5.25%

Together with the low inflation, Governor Malhotra highlighted GDP growth at 8% for the first half of this year, which presents a rare "Goldilocks" period.

The RBI has changed the interest rates it uses to manage money in the banking system. Banks can now deposit extra money with the RBI at a 5% interest rate. Called the standing deposit facility or SDF, this was 5.25% earlier. On the other hand, if banks need to borrow money from the RBI in an emergency, the rate will be 5.50% (this is called the MSF or marginal standing rate). These changes usually help guide overall borrowing costs in the economy after a rate cut.

2. Growth estimates revised upwards

The RBI revised its FY26 GDP growth estimates to 7.3% from 6.8% previously, with Q3FY26 estimates increased to 7% from 6.4%, Q4FY26 estimates raised to 6.5% from 6.2%, and Q1FY27 estimates increased to 6.7% from 6.4%. The central bank expects the Indian economy to grow at a rate of 6.8% in the second quarter of FY27.

"Looking ahead, domestic factors such as healthy agricultural prospects, continued impact of GST rationalisation, benign inflation, healthy balance sheets of corporates and financial institutions and congenial monetary and financial conditions should continue to support economic activity. Continuing reform initiatives would further facilitate growth," said Governor Malhotra.

3. Inflation forecast revised downwards

The central bank cut FY26 CPI inflation forecast to 2% from 2.6% earlier, with Q3FY26 forecast cut to 0.6% from 1.8%, Q4FY26 forecast cut to 2.9% from 4%, and Q1FY27 estimates lowered to 3.9% from 4.5%. RBI expects retail inflation at 4% in Q2FY27.

"The MPC noted that headline inflation has eased significantly and is likely to be softer than the earlier projections, primarily on account of the exceptionally benign food prices," said the RBI Governor.

4. RBI to conduct OMO, USD/INR buy-sell swap

The central bank announced that it will conduct open market operations (OMO) purchases of ₹1 trillion in government securities and a three-year USD/INR buy-sell swap of $5 billion in December to inject durable liquidity into the system.

"We have decided to conduct open market operation (OMO) purchases of government securities amounting to ₹1,00,000 crore and 3-year USD/INR buy-sell swaps of $5 billion this month. These measures will ensure adequate, durable liquidity in the system and further facilitate monetary transmission," said the RBI Governor.

5. RBI to hold a two-month campaign to address grievances

The RBI will conduct a two-month campaign from January next year to address grievances pending for more than a month with the RBI Ombudsman, noting that in recent years, due to the receipt of a large number of grievances, the pending cases with the RBI Ombudsman have increased.

"We propose to hold a two-month campaign from 1st January next year with an aim to resolve all grievances pending for more than a month with the RBI Ombudsman. I elicit the support of all regulated entities in this endeavour," said the RBI Governor.