RBI cuts repo rate by 25 bps, boosts liquidity to support growth

By Vriti Gothi

The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points, in line with expectations, citing a benign inflation outlook and the central bank’s commitment to sustaining growth momentum. The Monetary Policy Committee (MPC) maintained a neutral stance while lowering inflation projections for FY26 and H1FY27 and revising up the country’s GDP growth forecast.

Naval Kagalwala, COO & Head of Products at Shriram Wealth Ltd., noted, “The RBI MPC cut the repo rate by 25 bps, supported by the benign inflation outlook on both headline and core inflation. The neutral policy stance was maintained. Inflation for FY26 is projected at 2% vis-à-vis 2.6% earlier, with the projection for H1FY27 also lowered when compared to October estimates (with Q1 and Q2 now seen at 3.9% and 4% respectively – within RBI’s medium-term inflation target). Additionally, real GDP growth for this year was raised from 6.8% to 7.3%.”

The RBI also announced measures to bolster market liquidity, including open market operations (OMOs) worth $11.2 billion to be executed in two equal tranches this month, along with a $5 billion buy/sell swap over three years. According to Kagalwala, “The overall outcome was largely along expected lines, with limited downside in bond yields seen following the announcement. The Central Bank clarified that the primary purpose of the OMO was to manage liquidity and not to directly influence yields. During the post-policy conference, the RBI Governor assured to provide ample system liquidity in the current rate environment, with OMOs to be conducted across maturities. The Governor also noted that tolerance towards INR depreciation had not changed and repeated that INR will be allowed to move as per market forces. Lastly, the policy statement noted that growth-inflation dynamics continue to provide space to support the growth momentum – implying that conducive financial conditions are here to stay as long as inflation remains soft.”

Industry experts highlighted the broader significance of the move. Vijay Kuppa, CEO of InCred Money, observed, “The latest MPC statement makes the growth thrust crystal clear. After the government’s fiscal boost through GST cuts, monetary policy has now moved in tandem – a rate cut made possible by inflation falling far below expectations and an improved outlook ahead. The RBI is also bolstering market liquidity through a ₹1 lakh crore OMO and a $5 billion swap, ensuring durable liquidity and smoother transmission. Together, these steps signal a coordinated push to keep India firmly on its growth trajectory.”

The policy action underscores the RBI’s dual focus on sustaining economic growth while keeping inflation within manageable bounds. Analysts expect that the combination of lower rates and enhanced liquidity will continue to support lending and investment activity, reinforcing the central bank’s intent to maintain conducive financial conditions in a still-evolving macroeconomic environment.