RBI Decided to Cut Repo Rate by 0.25% to 5.25%: Retains Policy Stance as Neutral

The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday, December 5, unanimously voted to reduce the repo rate by 25 basis points to 5.25%, while continuing with a neutral policy stance. RBI Governor Sanjay Malhotra described the prevailing economic environment as a “rare Goldilocks phase,” marked by strong growth and contained inflation.

OMO Purchases and FX Swap Announced

In addition to the rate cut, the central bank announced open market operation (OMO) purchases totalling ₹1 lakh crore in government securities, along with a three-year dollar–rupee buy-sell swap. While the RBI expects growth to moderate slightly in the coming months, it projects headline and core inflation to stay at or below 4% in the first half of FY27, creating further policy flexibility.

Adjustments in LAF Corridor Rates

Following the policy decision, the Standing Deposit Facility (SDF) rate under the Liquidity Adjustment Facility (LAF) has been revised to 5%. Meanwhile, the Marginal Standing Facility (MSF) rate and the bank rate have been increased to 5.5%. The MPC also reaffirmed its neutral stance going forward.

Reflecting on recent economic trends, Governor Malhotra stated in his Monetary Policy Statement, “We look back at the year so far with considerable satisfaction. The economy has registered robust growth alongside benign inflation. Since the October policy review, rapid disinflation has taken hold, with inflation easing to just 0.3% in October 2025. Real GDP rose by 8.2% in Q2, supported by strong festive spending and the rationalisation of GST rates. With inflation at 2.2% and growth at 8% in the first half of the year, the economy is experiencing a rare Goldilocks period.”

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