The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday delivered a widely anticipated 25-basis-point reduction in the repo rate, taking it down to 5.25 per cent, even as policymakers projected a far more comfortable inflation trajectory for the coming year.
The committee, chaired by Governor Sanjay Malhotra, also voted unanimously to retain its neutral stance, signalling that future policy decisions will remain data‑dependent.
Inflation Set At 2% For FY26
In its most notable revision, the RBI cut its FY26 inflation forecast to 2 per cent, down 0.6 percentage points from the October assessment. Updated quarterly projections are:
| Quarter | Earlier | Now |
| Q3 FY26 | 1.8% | 0.6% |
| Q4 FY26 | 4% | 2.9% |
| Q1 FY27 | 4.5% | 3.9% |
The inflation estimate for the second quarter of the upcoming 2026-27 fiscal year stands at 4 per cent.
The central bank credited improved food supply prospects, better reservoir levels, favourable soil moisture, and easing global commodity prices. It also highlighted that underlying inflationary pressures remain subdued.
Governor Malhotra explained, “Average headline inflation for a quarter at 1.7 per cent in Q2 FY26 breached the lower tolerance threshold of 2 per cent for the first time since the adoption of flexible inflation targeting. It dipped further to 0.3 per cent in October 2025. On the other hand, real GDP growth accelerated to 8.2 per cent in Q2, buoyed by strong spending during the festive season. Inflation at 2.2 per cent and growth at 8 per cent in H1:2025‑26 present a rare goldilocks period.”
Growth Takes Centre Stage As Inflation Retreats
Unlike previous policy cycles dominated by inflation management, today’s announcement placed growth firmly at the centre. With inflation at multi‑year lows, the RBI positioned price stability as an enabler rather than a constraint.
The central bank also noted that risks remain “evenly balanced.” While some metals have seen price increases, broader commodity trends support a benign inflation outlook. The RBI emphasised that its projections factor in a temporary bump from precious metals, roughly 50 basis points, but underlying pressures remain soft.
The rate cut and the revised inflation projections signal that policymakers believe the economy has room to expand without triggering price instability. The RBI indicated that further moves will depend on global trade dynamics, geopolitical risks, and domestic supply conditions.
Governor Malhotra underscored the central bank’s readiness to manage liquidity conditions more actively. “The MPC also decided to continue with a neutral stance. In view of evolving liquidity conditions, the Reserve Bank will conduct OMO purchases of government securities worth Rs 1 lakh crore and a three‑year rupee buy-sell swap of 5 billion US dollars this December to inject durable liquidity into the system,” he said.
The panel noted that headline inflation “has eased significantly and is likely to remain softer than earlier projections.”
