Reserve Bank of India (RBI) Governor Sanjay Malhotra
The Reserve Bank of India (RBI) on Friday lowered the repo rate by 25 basis points to 5.25%, while retaining a neutral stance on monetary policy. The decision followed a three-day meeting of the Monetary Policy Committee (MPC), chaired by RBI Governor Sanjay Malhotra, which examined the current state of the economy and the financial system.
RBI Governor Sanjay Malhotra noted that India’s current account deficit (CAD) has improved significantly, falling from 2.2% of GDP in Q2 of last year to 1.3% in Q2 this year. He attributed this 0.9% drop to strong services exports and robust remittances in October 2025.
Prior to the announcement, most of the 44 economists surveyed by Bloomberg had anticipated a repo rate cut of 25 basis points to 5.25%, as inflation remains well below the 4% target. However, with the Indian economy expanding faster than expected and the rupee hitting a record low below 90 to the US dollar, analysts including Citigroup Inc., Standard Chartered Plc, and the State Bank of India noted that the RBI had reasons to pause.
The central bank also set the Standing Deposit Facility (SDF) rate at 5.00% and the Marginal Standing Facility (MSF) rate at 5.50%. These rates will guide liquidity in the banking system until the next MPC review.
Alongside the rate cut, the RBI revised its macroeconomic projections. The real GDP growth forecast for FY26 has been raised to 7.3%, up from 6.8% projected in October. At the same time, the Consumer Price Index (CPI) inflation projection has been lowered to 2%, down from 2.6% in the previous review.
In its October 2025 review, the RBI had maintained the repo rate at 5.5% and continued with a neutral stance. At that time, the Cash Reserve Ratio (CRR) was 3%, the SDF rate was 5.25%, the MSF rate was 5.75%, and the Bank Rate was 5.75%.
Repo rate cut by 25 bps to 5.25%.
Neutral monetary policy stance maintained.
FY26 GDP growth forecast raised to 7.3% from 6.8%.
FY26 inflation projection lowered to 2% from 2.6%.
After keeping the repo rate unchanged in the past two meetings, Governor Malhotra had indicated last month that there was “definitely scope” for rate cuts. Despite this, official data shows that the Indian economy is holding up well even under the pressure of 50% US tariffs, while the rupee has weakened sharply.
Soumya Kanti Ghosh, chief economic adviser at the State Bank of India and a member of the Prime Minister’s Economic Advisory Council, said that “expectations of an RBI repo rate cut appear to have faded,” suggesting that the central bank may now enter a phase of prolonged pause.
The rupee’s decline since the last MPC meeting made predicting Friday’s decision challenging. The RBI has shifted from actively defending the currency to letting it slide past 90 to the US dollar this week, amid uncertainty over a potential India-US trade deal.
