Advertisement
The RBI has cut the repo rate by 25 basis points to 5.25%, ending a six-month pause and signalling renewed support for economic activity. The move comes amid export pressures from new US tariffs and a weaker rupee. To ease funding conditions, the RBI also announced INR 1 lakh crore of open-market bond purchases and a USD 5 billion forex swap this month. This is the fourth rate cut since February, taking the total reduction to 125 bps. With inflation down to 2.2% and GDP growth at 8% in April-September, Governor Sanjay Malhotra said the environment now favours growth. Economists welcomed the decision, citing strong transmission potential next fiscal year.
The Reserve Bank of India announced a 25-basis-point reduction in the repo rate to 5.25 per cent, ending a six-month pause and signalling renewed support for economic activity. The monetary policy committee, led by Governor Sanjay Malhotra, voted unanimously for the cut and retained a neutral stance to allow scope for further adjustments, depending on evolving domestic and global conditions. Advertisement
The move comes at a time when the Indian economy is facing pressures from the steep 50 per cent tariffs imposed by the United States on Indian goods. The duties have contributed to a fall in exports, a wider trade deficit and a weaker rupee. By reducing the cost at which banks borrow from the central bank, the RBI aims to encourage lenders to pass on the benefit, thereby lowering EMIs for home, auto and business loans.
Alongside the rate cut, the RBI announced liquidity measures amounting to INR 1 lakh crore through open market purchases of government securities on 11 and 18 December. A USD 5 billion buy-sell forex swap scheduled for 16 December is expected to add further durable liquidity to the system. These steps are intended to ease seasonal funding pressures and strengthen transmission of the lower policy rate.
This is the fourth rate cut since February 2025, taking the cumulative reduction to 125 basis points. Inflation has softened to 2.2 per cent in the first half of the fiscal year, prompting the central bank to revise its full-year inflation forecast to 2 per cent. At the same time, GDP growth in April-September has reached 8 per cent, exceeding earlier expectations.
Governor Malhotra noted that the combination of strong growth and subdued inflation has created an environment conducive to supporting momentum in the real economy. While acknowledging external challenges, he stated that the domestic economy has shown resilience, aided by government reforms in taxation, labour rules and financial sector regulations.
Economists have broadly welcomed the decision. According to Crisil's chief economist Dharmakirti Joshi, the rate cut and liquidity measures reflect the central bank's intention to prioritise growth, particularly as inflation has dropped below the lower end of the target band. Core inflation remains contained, supported by GST reductions and a lack of supply-side pressures. Analysts expect the impact of the rate cut to strengthen through next fiscal year, given the typical lag in monetary transmission.
Source - PTI
5th Jun, 2025
25th May, 2023
11th May, 2023
27th Apr, 2023
Advertisement
Facebook
Whatsapp
