Malhotra unveils 25 bps rate cut, Rs 1.5 lakh crore liquidity boost, calls economy a ‘rare Goldilocks period’

MUMBAI: The Reserve Bank of India’s Monetary Policy Committee cut the policy repo rate by 25 basis points to 5.25%, down from 5.50% in the October 1 policy review, while retaining a neutral stance. The RBI also hiked FY26 GDP forecast to 7.3% from 6.8% earlier and lowered inflation forecast to 2%.RBI governor Sanjay Malhotra announced measures to inject nearly Rs 1.45 lakh crore of liquidity into the bond market through Rs 1 lakh crore of bond repurchases and a three-year dollar–rupee swap worth $5 billion. Reducing the inflation forecast and raising growth projections, Malhotra said the economy was in a “rare Goldilocks period” due to benign inflation and strong growth, creating room to reinforce the momentum.This is the first rate cut since February 2025 and follows inflation settling within the target band of 2% to 4%, with domestic growth holding firm despite global trade tensions.The RBI revised its 2025-26 real GDP growth projection to 7.3%, up from 6.8%. Quarterly projections now stand at 7% for Q3 (6.4% earlier) and 6.5% for Q4 (6.2% earlier). For the next financial year, growth has been projected at 6.7%, with Q2 pegged at 6.8%. Malhotra said GST cuts have supported overall demand, while rural demand has been lifted by good monsoon prospects.CPI inflation for 2025-26 is projected at 2%, lower than the earlier estimate of 2.6% due to easing food prices. Quarterly projections are 0.6% for Q3 (1.8% earlier), 2.9% for Q4 (4.0%), 3.9% for Q1 of 2026-27 (4.5%), and 4% for Q2 FY26. Malhotra noted that inflation pressures were even lower considering that half of the recent rise in the index came from precious metals.The central bank attributed the revisions to easing food prices and GST rationalisation, partly offset by weak external demand.The announcement comes amid recent rupee depreciation to around 89.84–90 per dollar, even as the RBI maintains reserves of $686 billion, providing import cover of more than 11 months. Malhotra said the external sector remains resilient despite FII outflows and challenges in merchandise exports, supported by strong services exports and remittances.Major central banks, including the US Federal Reserve and the ECB, held rates last month, though expectations of policy easing in 2026 have grown. Domestic data has been supportive, with Q2 GDP rising 8.2% on the back of services and investment strength, and October CPI inflation at 0.25%, the lowest in decades due to GST cuts and steady food supplies.The rate cut is expected to improve liquidity and support investments in the final quarter of the fiscal year. Bankers said the governor appeared to have acted despite pressures on the rupee as the window for a rate cut could narrow next year when inflation begins to rise from this year’s low base.