The Reserve Bank of India (RBI) surprised markets on Friday by reducing the repo rate by 50 basis points, bringing it down to 5.50%. RBI Governor Sanjay Malhotra made the announcement following the Monetary Policy Committee (MPC) meeting.
This marks the third straight rate cut by the central bank this year. So far in 2025, the RBI has lowered rates by a total of 100 basis points—starting with a 25 bps cut in February, which was the first since May 2020, followed by a similar move in April.
Inflation under control
Governor Malhotra said inflation has dropped sharply, giving the RBI room to support economic expansion. “Inflation has softened significantly,” he stated. He also added that inflation is aligning well with the RBI’s target of 4%, and that core inflation remains under control. Retail inflation fell faster than expected in recent months, hitting a near six-year low of 3.16% in April. This was well below the central bank’s medium-term target.
Growth outlook positive
India’s economy continues to grow at a healthy pace. “India is already growing at a fast pace but aspires to grow at a higher pace,” Malhotra said. The GDP grew 7.4% in the January–March quarter, showing strong economic resilience.
GDP projections
Governor Malhotra shared the RBI’s growth forecast for the current financial year 2025–26. “Real GDP growth rate for this year 2025-2026, is projected at 6.5%, continuing with our earlier forecast, with Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6%, and Q4 at 6.4%. The risks are evenly balanced,” he said.
