The Reserve Bank of India (RBI) has slashed its repo rate by 25 basis points from 5.5% to 5.25%, the central bank’s governor Sanjay Malhotra announced this morning, focusing on measures to bolster growth and shrugging off concerns about the rupee’s slump.
The decision was taken unanimously after a three-day meeting of the RBI’s Monetary Policy Committee (MPC), held every two months to decide the central bank’s strategy, as it weighed record low inflation against a falling rupee that hit its lowest yesterday.
The MPC had earlier reduced the key lending rate in June from 6% to 5.5% in view of a softening inflation. A cut in the repo rate is expected to translate into cheaper housing and vehicle loans for retail borrowers.
The RBI expects retail inflation to be softer than its earlier projection, with underlying inflation pressures being lower than the headline estimates. Consumer Price Index (CPI) inflation, or retail inflation, has been projected downwards at 2% for FY2025-26.
For the first quarter of FY2026-27, the inflation is projected at 3.9%, lower than its previous estimate of 4.5%, with a rise in precious metal prices expected to add to the headline CPI. The risks to inflation forecasts are evenly balanced, Malhotra said.
The RBI has also sharply raised the Gross Domestic Product (GDP) forecast for the current financial year to 7.3% from its earlier estimate of 6.8%. The GDP forecast for the current quarter (Q3, October-December) is also higher at 6.7% than the earlier 6.4%.