India central bank cuts repo rate by 25 basis points, boosts liquidity

[MUMBAI] The Reserve Bank of India (RBI) cut its key repo rate by 25 basis points on Friday (Dec 5), in line with a consensus view, as record low retail inflation and a benign outlook for prices provided ample room to further support economic growth.

The RBI also decided to conduct open market operations of one trillion rupees (S$14.4 billion) and US$5 billion in forex swaps to add liquidity and speed up transmission of lower rates.

The six-member monetary policy committee (MPC) voted unanimously to lower the repo rate to 5.25 per cent and has now cut rates by a total of 125 basis points since February 2025. It held rates in August and October.

The Indian economy is facing a “rare goldilocks” period, RBI governor Sanjay Malhotra said.

Since October, the Indian economy has seen rapid disinflation leading to a breach of the central bank’s lower threshold of tolerance, said Malhotra, adding that growth had remained strong.

A majority of economists in a Reuters poll conducted ahead of last week’s GDP data had expected the repo rate to be reduced by a quarter point at the policy meeting, followed by a pause till 2026.

However, some analysts and market participants had pared down their rate cut bets after data showed the South Asian economy expanded at a sharper-than-expected clip of 8.2 per cent in the July to September quarter.

On the other hand, retail inflation stood at an all-time low of 0.25 per cent in October and is expected to remain soft in the coming months.

The MPC retained the monetary policy stance at ‘neutral’. REUTERS