RBI MPC Meeting Highlights: Repo rate cut by 25 basis points to 5.25%, EMIs to come down; RBI governor Sanjay Malhotra dismisses concerns on rupee, says comfortable on external sector

“Beyond the rate cut, RBI’s decision to purchase government bonds worth up to ₹ 1 lakh crore through open market operations (OMO), combined with a USD 5 billion buy-sell swap, marks a decisive effort to restore durable liquidity and stabilize currency markets after the rupee’s sharp depreciation. Through this dovish stance, RBI has struck a balanced policy that eases borrowing costs while shoring up financial conditions. With inflation at a multi-year low, there remains ample scope for further monetary support. We continue to see room for an additional 25 basis-point repo-rate cut, potentially taking the rate to 5%, later this financial year, emanating from uncertain global environment and tariffs,” said Sachin Bajaj, Executive Vice President & Chief Investment Officer, Axis Max Life Insurance.

“RBI assesses 2025-26 real GDP growth at 7.3% and CPI inflation at 2%. The latter is the lower bound of the RBI’s inflation tolerance range. This low inflation has provided the room for a 25-basis point reduction in the repo rate. This implies an overall reduction in the repo rate during 2025-26 by 100 basis points from 6.25% to 5.25% in three instalments of 25, 50 and 25 basis points introduced in April, June and December 2025 policy reviews. Given that inflation has remained contained, the RBI has been able to provide sustained support to growth. With continuing global uncertainties and India’s reliance on domestic growth drivers, this growth orientation of monetary policy appears desirable. It will facilitate higher investment by the private sector. It would also reduce the cost of incremental borrowing by the government as long as a fiscal consolidation path is adhered to. With inflation keeping low, real interest rates would still remain reasonable and deposits should not be adversely affected. Thus, going forward, India will continue to rely on the role of its resilient domestic demand to support growth,” said Dr. D.K. Srivastava, Chief Policy Advisor, EY India.

“Persistently low inflation and subdued core inflation has given RBI the headroom to cut repo rate, despite global headwinds posing threat to capital flows.The RBI’s move of repo rate cut and liquidity enhancing measures, is consistent with its focus on growth by ensuring availability of credit and transmission of lower rates to productive sectors of the economy. However, we think that RBI will remain extremely prudent and give precedence to price stability over growth when inflation concerns rise,” said Rahul Goswami, CIO & MD, India Fixed Income, Franklin Templeton.

“The 25 bps cut is in line with expectations. We anticipate another 25 bps reduction either in Feb ’25 or, at the latest, April ’25. While GDP growth has surprised on the upside, the nominal acceleration in traditional sectors still leaves considerable room for improvement. Since these sectors are major employers, a meaningful turnaround would support stronger job creation and, in turn, more durable domestic consumption—critical for insulating the Indian economy from global uncertainties. Cheaper capital—supported by stronger transmission, rate cuts, and liquidity injections—will enable a wide swath of small and micro enterprises within these sectors to fund capex and expand operations. This, in turn, can create meaningful employment opportunities, particularly for India’s rapidly growing youth population,” said Debopam Chaudhuri, Chief Economist, Piramal Finance.

“The Reserve Bank of India’s Monetary Policy Committee (MPC), under Governor Sanjay Malhotra, has concluded its December 2025 review with a measured yet anticipated step forward. In line with market expectations, the repo rate has been reduced by 25 basis points to 5.25%, marking the fourth cut in the easing cycle this year (totaling 125 bps). This adjustment reflects the MPC’s confidence in sustained disinflation, while maintaining a neutral policy stance to support robust economic momentum,” said Ashwani Dhanawat, Executive Director & Chief Investment Officer, Shriram General Insurance.

“What the IMF does is they put exchange rate regimes into three different categories, fixed, floating and managed float. Only a handful of countries currently have a fixed exchange rate. Most of the advanced economies have free float, and all the emerging markets have shades of floating managed floats. And this is what India practices.

“Within the managed float, RBI tries to curb undue volatility on each side of a reasonable level. IMF looked at the past six months of the data, and they found this volatility to be contained in a range that they have in mind, and based on that, they had a sub classification, which is called crawling peg. I would not read much into it. It just based on the cross country comparison of India having this much volatility compared to some other countries. The fact remains that India is a managed float, just like most of the emerging markets are,” said Dr. Poonam Gupta, Deputy Governor, RBI.

“When one digs further into their footnotes, it's about the base revision. It's not about the quality of data. It's not about the sanctity of the numbers that are put out. It's about a base which has been perceived to be dated. With this revision, I think they would be satisfied on this count ,” said Dr. Poonam Gupta, Deputy Governor, RBI.

“In line with our expectations, the Monetary Policy Committee (MPC) of the Reserve Bank of India has cut the repo rate by 25 basis points. The accompanying liquidity-enhancing measures, including open market purchases and forex swaps, underscore the growth-supportive nature of this policy decision.

This fiscal, economic data has surprised on both growth and inflation fronts, creating elbow room for the rate cut. Real gross domestic product (GDP) growth has surpassed expectations, reaching 8% in the first half of this fiscal, while retail inflation has decelerated sharply. The drop in headline inflation below the lower end of the RBI's target range of 2-6% has been driven by food inflation, with fuel inflation also subdued. Core inflation, excluding gold, was 2.6% in October, aided by goods and services tax (GST) cuts, indicating absence of excess demand pressure. Excess supply-chain capacity globally, particularly in China, also suggests limited upward pressure on goods inflation.

The repo rate cut is expected to support growth next fiscal, as monetary policy typically has a lagged effect. Today’s liquidity-enhancing measures will also help transmit the policy rate cut to broader market interest rates. We forecast India’s GDP growth at 7% this fiscal, following an expected slowdown to 6.1% in the second half due to higher United States tariffs and normalisation of government capital expenditure. Next fiscal, we expect GDP to grow a healthy 6.7%. We project inflation to remain benign at 2.5% this fiscal but rise to 5% next fiscal largely due to a statistical low-base effect,” said Dharmakirti Joshi, Chief Economist, Crisil Ltd.

“It's a minimal impact. It's not a very high impact. Because ours is mostly a domestic demand driven economy. A few sectors are certainly impacted by it. We have given out relief package. The government of India has also given out a relief package. I think this is an opportunity for us. Exporters have already started looking out improving, not only, their productivity but diversifying, etc. We should be able to come out of this stronger going forward,” said RBI governor Sanjay Malhotra.

"The repo-rate cut would bring more relief to both prospective and existing home loan borrowers. Transmission of the rate cut would be faster for floating rate loans linked to repo rate. Borrowers whose loans are linked to MCLR or other internal benchmarks, may have to wait longer for the transmission as the cost of funds of the banks plays a major role in determining their internal benchmark rates. The date of transmission would depend on the interest reset dates set by their lender. Home loan borrowers generally have the option to reduce their EMI amount or reduce their tenure with the same EMI.

As banks would fully pass the benefits of the rate cut to retail borrowers over a period of time, we should see stronger demand for credit for the next few months. The rate cut should further boost spending and investments from existing borrowers and better the overall liquidity in the system.

The reduced repo-rate and stronger liquidity should also help Banks to reduce interest rates of FDs and other liability-side fund sources further. While this would not impact existing FDs, those planning to make new investments in FDs should try to lock the existing interest rates before rates are trimmed,” said Santosh Agarwal, CEO, Paisabazaar.

“The RBI MPC’s decision to slash the policy repo rate by 25 basis points, while maintaining the policy stance at ‘neutral’ is in line with our expectations. RBI chose to utilise the window of opportunity provided by very low inflation to provide impetus to growth. Moreover, the liquidity injecting measures announced should ensure smooth transition of policy rate cuts done so far.

While the growth data has been strong so far, there is no denying that heightened global uncertainty is likely to continue next year. GDP growth is likely to moderate in the coming quarters as goods exports feel the pinch of higher US tariffs and low base effect wears off. However, we expect GDP growth to still be healthy at 7.5% in FY26 and around 7% in FY27. With average inflation at around 4% in FY27, real rate of interest would be in the neutral zone at around 1.25%, implying no need for further rate cuts in 2026,” says Rajani Sinha, Chief Economist, CareEdge Ratings.

“The RBI’s decision to reduce the repo rate by 25 basis points comes at a perfect time for the industry and reinforces India’s Goldilocks moment of low inflation and strong growth. A lower interest rate regime will provide much-needed momentum to housing demand, especially in the mid-income and premium categories where sentiment has remained strong. With inflation stabilising and GDP growth accelerating, this policy move will not only improve homebuyer affordability but also support developers by reducing overall borrowing costs. We expect the rate cut to trigger improved sales velocity across key markets in Maharashtra,” said Prashant Sharma, President, NAREDCO Maharashtra.

“We are going by whatever are the high frequency indicators that we track. So it's basis that that we feel that the growth that has been about 8% in H1 will not be of the same order,” said RBI governor Sanjay Malhotra.

“We don't target any level. We just let the rupee, find its correct position correct level and band just for an orderly movement,” said RBI governor Sanjay Malhotra.

As per RBI MPC members, benign inflation outlook on both headline and core, continues to provide policy space to support the growth momentum. MPC reduced the policy rates by 25 basis points and continue with its neutral stance. The language seems to indicate one more rate cut in the coming months as current year CPI inflation has been revised lower to 2 percent from 2.6 percent and growth for next year and GDP growth has been revised upwards to 7.3 percent from 6.8 percent projected. CPI inflation is projected at 3.9 and 4 percent and GDP growth is projected at 6.7 and 6.8 for Q1 and Q2 of next year 2026-27 . As per RBI Governor, Core inflation pressure is still low given 50 basis points of increase in core inflation is contributed by metal prices.

RBI Governor has announced Open Market Operations of Rs 1 lakh crores with Rs 50000 on December 11 and another Rs 50000 Crores on December 18. Forex buy Sell swap of 5 billion USD is to be done on December 16. A total of Rs 145000 crores of liquidity is expected to be injected in the next 15 days. This is for the month of December only and further measures are expected in the fourth quarter of financial year. This should take the ten-year yields to 6.25 to 6.30 levels in the coming months from the 6.45 to 6.50 prevailing now, said Murthy Nagarajan, Head-Fixed Income, Tata Asset Management.

“Our stated policy always has been that we allow the markets to determine. We don't target any price levels or any bands. We allow the markets to determine the prices. We believe that the markets in the long run especially, are very efficient. It's a very deep market. We saw this earlier in February. The rupee to dollar had climbed up to almost 88 and within a period of three months, it came back to below 84 so these fluctuations, this volatility, does happen, can happen.

Our effort has been always to reduce any abnormal or excessive volatility, and that is what we will continue to endeavor. Our external sector is very strong. Going forward, we do believe that we are having sufficient reserves.

Current account is very manageable at about 1% or so, and given the strong fundamentals of our country, we should get good capital flows as well going forward. So I think we are in a very comfortable situation in so far as the insofar as the external sector position is concerned,” said RBI governor Sanjay Malhotra.

“Inflation is very benign. It has been benign. If you exclude food, which has been volatile last two years, it has been three, three and a half percent. And going forward too, if you exclude gold and precious metals, silver. our expectation is that it is going to be very benign.

Now, whether that opens up policy for further rate cuts, that will be, you know, getting into speculation, I don't want to get, you know, into that. The more important thing now is that having reduced the policy repo rate by further 25 basis points., we have to now, concentrate on the monetary policy transmission and considering the fact you know that inflation is going to be very benign, I think let it first, transmit into the real economy and then, we'll see you know as to how how inflation behaves how the growth, inflation, dynamics, behave and we take it policy by policy,” said RBI governor Sanjay Malhotra.

“RBI had the headroom to decrease the interest rate by 25 bps, which it has rightly done. The RBI has gone all out to support India’s growth engine, which is currently among the strongest across large economies. India has truly stood the test of tariffs and geopolitical turmoil, and we can be proud of that. With the USA also expected to ease monetary policy, the pressure on the Indian rupee will likely subside, thereby laying the foundation for the next phase of growth momentum,” says Umeshkumar Mehta, CIO, SAMCO Mutual Fund.

“We had anticipated a 25 bps repo rate cut in the December 2025 Monetary Policy, even as the Reserve Bank of India was widely expected to revise FY26 GDP growth higher and retail inflation forecasts lower. All three expectations materialised. Alongside the rate cut, the RBI announced open market purchases of government bonds and swap transactions, signalling a clear easing bias.
The key driver behind the policy shift, despite strong macro fundamentals, is the sustained downside surprise in inflation prints. With headline inflation consistently undershooting projections, the RBI has been compelled to recalibrate its inflation trajectory downward. This has opened space for policy accommodation without compromising macro stability.”

“A softer monetary stance and liquidity infusion could exert pressure on the rupee. However, the planned ₹1.5 trillion of bond purchases — including ₹0.5 trillion through swaps — enhances the RBI’s ability to intervene in currency markets through dollar sales without tightening domestic liquidity conditions.”

“In the near term, the RBI is expected to adopt a wait-and-watch approach. Yet, if inflation continues to trend below the projected path, the possibility of another 25 bps cut cannot be dismissed. Overall, the policy actions are constructive for both the equity and bond markets, reinforcing a benign interest-rate environment and supporting valuations,” said Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group.

“The RBI’s decision to reduce the repo rate by 25 basis points to 5.25% is a welcome development for the real estate sector and a strong confidence-booster for homebuyers. At a time when demand for residential housing—especially in the mid-income and premium segments—continues to grow across major markets, this move will provide meaningful relief by lowering home loan EMIs and improving affordability. The rate cut reinforces a positive borrowing environment and is expected to stimulate further momentum in both new launches and property sales. With inflation on a controlled trajectory and economic fundamentals remaining robust, we are optimistic that this policy stance will support sustained growth of India’s housing market in the coming quarters, says Praveen Sharma, CEO, REA India (Housing.com).

With inflation under the tolerance band and the growth impetus needed for the Indian economy, the much needed rate cut was provided by the RBI. While widely expected, it was a right call by the RBI with a neutral stance, depicting that the RBI is still watchful of how the global environment plays out, said Vivek Iyer, Partner and Financial Services Risk Advisory Leader, Grant Thornton Bharat.

“The RBI delivered on most fronts on Friday, lowering rates as per our expectations and taking pro-liquidity steps, as well as measures to prevent a re-hardening in borrowing costs. The policy decision was likely dictated by a higher weightage given to below-target inflation, which had provided a sizeable real rate buffer. Backing the move, inflation forecasts were lowered, while growth numbers were marked-to-market given the strong 1HFY26 momentum. Policy guidance was also constructive, which is likely to be received positively by the onshore markets. The committee typically refrains from providing directional cues on the currency, instead emphasising a preference to minimize volatility and discourage one-sided speculative bets,” said Radhika Rao, Executive Director and Senior Economist, DBS Bank.

“The MPC decided to vote in favour of growth despite ongoing robust growth in the economy. The unanimous nature of the decision in cutting rates by 25 bp reflects the consensus in the MPC that giving further boost to growth is a risk worth taking even in the context of depreciating rupee.

The projection of 7.3% GDP growth for FY 26 is positive for the market. Banks will like the policy decision overall but are unlikely to respond very positively to the rate cut since their NIMs will come under pressure and they will face difficulties in mobilising deposits if deposit rates are lowered.

However, rate sensitives like autos and real estate stand to gain from the rate cut,” said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

“The Reserve Bank of India (RBI), through a unanimous decision, reduced the repo rate by 25 basis points (bps) while retaining a neutral stance. This policy shift was coupled with updated projections for FY26, including an increase in the Real GDP growth forecast to 7.3% for FY26 from 6.8% and a revised CPI inflation estimates of 2.0 from 2.6% for FY26. Furthermore, to manage financial conditions, the RBI announced an Open Market Operations (OMO) purchase of ₹1.0 lakh crore in December to inject liquidity, alongside a plan to purchase $5 billion USD over three years to stabilize the rupee, ultimately benefiting credit-sensitive sectors like NBFCs, SFBs, MFIs, auto, real estate and gold financiers. However, Banks will see pressure on their NIMs in the short term,” said Vijay Gour Research Analyst Mirae Asset ShareKhan.

Given the recent inflation prints and the lack of transmission of lower interest rates in the banking sector, the RBI repo rate cut by 25bps is timely. Interestingly, the forward expectations of inflation have come much lower, opening the door for another rate cut if required before the end of the financial year. The idea is to make funding cheaper for governments and corporates, and the Rs. 1 lakh crore OMO purchases announcement should assist in boosting liquidity and flattening the yield curve. Following this, investors should look to lock in current high rates from corporates in the 2-3y segment and complement this by buying long end government bonds for potential gains,” said Vishal Goenka, Co-Founder of IndiaBonds.com.

Economic activity during the first half of the financial year benefited from income tax and goods and services tax (GST) rationalisation, softer crude oil prices, front-loading of government capital expenditure, and facilitative monetary and financial conditions supported by benign inflation said RBI governor Sanjay Malhotra.

Real gross domestic product (GDP) registered a six-quarter high growth of 8.2 per cent in Q2:2025-26, underpinned by resilient domestic demand amidst global trade and policy uncertainties. On the supply side, real gross value added (GVA) expanded by 8.1 per cent, aided by buoyant industrial and services sectors.

External uncertainties continue to pose downside risks to the outlook, while speedy conclusion of various ongoing trade and investment negotiations present upside potential, said RBI governor Sanjay Malhotra.

“High-frequency indicators suggest that domestic economic activity is holding up in Q3, although there are some emerging signs of weakness in few leading indicators. GST rationalisation and festival-related spending supported domestic demand during October-November. Rural demand continues to be robust while urban demand is recovering steadily,” said RBI governor Sanjay Malhotra.

“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 supportive. We will continue to meet the productive requirements of the economy in a proactive manner, while ensuring macroeconomic stability,” said RBI governor Sanjay Malhotra.

“We propose to hold a two month campaign from first January next year, with an aim to resolve all grievances, pending with the ombudsman with the RBI ombudsman for more than a month,” said RBI governor Sanjay Malhotra.

The MPC unanimously voted to reduce the policy repo rate by 25 basis points to 5.25% and the MPC also decided to continue with the neutral stance, said RBI governor Sanjay Malhotra.

India's current account deficit moderated from 2.2% of GDP in Q2 last year to 1.3% - a decrease of about 0.9% in Q2 this year on account of robust services exports, which continue to do well and strong remittances in October 2025. Merchandise exports contracted yoy, whereas merchandise imports continued to increase for the second consecutive month. This resulted in widening of the trade deficit, said RBI governor Sanjay Malhotra.

“CPI inflation declined to an all time low in October 2025 - the faster than anticipated decline in inflation was led by correction in food prices, contrary to the usual trend witnessed during the months of September and October. Core inflation moderated to 2.6% in October overall, the decline in inflation has become more generalized.

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.

Considering all these factors, CPI inflation for this year is now projected at 2%, about 0.6% downwards from our earlier outlook. Q3 is at 0.6% and Q4 moves up to 2.9%. CPI inflation for Q1 and Q2 next year are projected at 3.9% and 4% respectively.

I may, however, add that the underlying inflation pressures are even lower as the impact of increase in price of precious metals is about 50 basis points, the risks are evenly balanced,” said RBI governor Sanjay Malhotra.

Real GDP growth for this year is now projected at 7.3%. This is up by about half a percent from our earlier projections. Q3 is projected at 7% and Q4 at 6.5%. Real GDP growth for Q1 next year is projected at 6.7% and Q2 next year at 6.8%. The risks are evenly balanced, said RBI governor Sanjay Malhotra.

Looking ahead domestic factors such as healthy agricultural prospects, continued impact of GST rationalization, benign inflation, healthy balance sheets of corporates and financial institutions, congenial monetary and financial conditions should continue to support economic activity, said RBI governor Sanjay Malhotra

“The MPC noted that the headline inflation has eased significantly and is likely to be softer than the earlier projections. This is primarily on account of the exceptionally benign food prices reflecting these favorable conditions the projections for average headline inflation this year and Q1 next year have been further revised downwards. Core inflation, which had been rising steadily since Q1 last year, eased at the margin in Q2 this year and is expected to remain anchored in the period ahead. So both headline and core inflation are expected to be at or below the 4% mark during the first half of next year,” said RBI governor Sanjay Malhotra.

In view of the evolving liquidity conditions and the outlook, the Reserve Bank has decided to conduct OMO purchases of government securities of one lakh crore rupees and a three year dollar rupee, buy, sell, swap of 5 billion US dollars this month in December, to inject further durable liquidity into the system, said RBI governor Sanjay Malhotra.

The MPC met on the third, fourth and fifth of December to deliberate and decide on the policy repo rate. After a detailed assessment of the evolving macroeconomic conditions and the outlook, the MPC voted unanimously to reduce the policy repo rate by 25 basis points to 5.25% with immediate effect, said RBI governor Sanjay Malhotra.

RBI governor Sanjay Malhotra-led MPC has cut the repo rate by 25 basis points to 5.25%.

“Inflation at a benign 2.2% and growth at 8% for the half year of for the first half of this year presents a rare Goldilocks period,” said RBI governor Sanjay Malhotra.

“Since the October policy, the Indian economy has witnessed rapid disinflation, with inflation coming down to an unprecedentedly low level for the first time since the adoption of flexible inflation targeting”, said RBI governor Sanjay Malhotra

“The economy witnessed robust growth and benign inflation. The banking system further consolidated and the regulatory framework was refined to strengthen the financial system, enhance ease of doing business, and improve consumer protection. At the same time, we approach the New Year with hope vigor and determination to further support the economy and accelerate progress”, said RBI governor Sanjay Malhotra

“The economy continues to be robust with significant investments across businesses in recent times. Within this landscape, India’s real estate market stands out as one of the most dynamic and fastest growing in the world. Real estate investments hence remain the most desired due to their strong base and reliability factor and as the sector continues to benefit from improved buyer sentiment and strong housing demand, we look forward to a supportive stance from the RBI in the upcoming monetary policy announcement. We are hopeful of a rate cut as it would be highly encouraging for homebuyers and developers alike, potentially boosting affordability and investments in the sector. It would also strengthen market confidence and also act as a strong signal of policy support for the real estate sector and the broader economy. However, for the intended benefits to materialize, the transmission of the reduced rates must also be faster, ultimately benefiting the real estate sector and contributing positively to overall economic expansion. A stable interest-rate environment will play a crucial role in sustaining homebuyer confidence in the coming year. We are also expecting significant growth in the near future, building on the success of this year and the continued strong demand in the real estate sector driven primarily by burgeoning aspirations. As long as the macro fundamentals are stable, demand for real estate will continue to grow and supportive monetary policy will only accelerate its upward trajectory. The Indian real estate market is booming and being a part of its growth can extend favourable returns in the future,” says Ramani Sastri, Chairman and MD, Sterling Developers.