RBI Cuts Repo Rate by 25 bps to 5.25%; Raises GDP Growth Outlook to 7.3%

The Reserve Bank of India's Monetary Policy Committee (MPC) convened its 58th meeting from December 3 to 5, 2025, the MPC decided to cut the policy repo rate by 25 basis points to 5.25% under the liquidity adjustment facility. The standing deposit facility rate is adjusted to 5.00%, while the marginal standing facility rate and bank rate are set at 5.50%. The committee maintained a neutral policy stance.

Global and Domestic Economic Context

Global growth exceeded expectations amid easing uncertainties from US policy resolutions and trade progress, though inflation hovers above targets in advanced economies. Equity volatility persists due to policy outlooks and tech valuations, with a firm US dollar. Domestically, Q2 2025-26 GDP hit 8.2 %, fuelled by strong demand, GST reforms, low crude prices, and fiscal support. Q3 indicators show resilience via festival spending, rural strength, urban rebound, and credit-driven investments, despite export softness.

Growth Projections and Drivers

MPC projects 7.3% real GDP growth for 2025-26, up from Q2’s 6.8%, with Q3 at 7.0%, Q4 at 6.5%, Q1 2026-27 at 6.7%, and Q2 at 6.8%; risks balance evenly. Agriculture thrives on robust kharif output, reservoirs, and rabi progress, while manufacturing and services expand steadily. Reforms, healthy corporates, and benign conditions bolster prospects, offset by external merchandise drags but lifted by services exports.

Inflation Trends and Outlook

In October 2025, CPI inflation reached record lows, driven by food price drops, with core at 2.6% with gold effects. Supply gluts from harvests and moderating commodities ease pressures further. Revised forecasts show 2.0% for 2025-26, Q3 at 0.6%, Q4 at 2.9%, Q1 2026-27 at 3.9%, and Q2 at 4.0%; underlying forces remain subdued.

Policy Rationale and Forward Path

Easing headline and core inflation, paired with solid yet moderating growth, prompted the rate cut to sustain momentum amid global risks. A neutral stance balances the 4% target and growth support. The next meeting will take place from February 4 to 6, 2026.