On Friday, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points, bringing it to 5.25%. The decision aims to stimulate growth in India’s economy, which is facing challenges from external economic pressures. The RBI also hinted at the possibility of more rate cuts in the future.
The RBI emphasized that India’s foreign exchange market has remained stable, which made this move possible. Indian Prime Minister Narendra Modi‘s government has already introduced reforms such as lowering consumer taxes, adjusting labor rules, and easing financial sector regulations to boost domestic growth.
The RBI’s monetary policy committee voted unanimously to lower the repo rate. The committee also kept a neutral stance, suggesting that further rate cuts are possible. This is the fifth rate cut by the RBI this year, bringing the total to 125 basis points since February 2025. The last two meetings, in August and October, had kept the rates steady.
In his statement, RBI Governor Sanjay Malhotra said India is in a “rare goldilocks period.” He noted that inflation has remained low, and growth is strong. Malhotra explained that inflation had dropped below the RBI’s lower threshold, giving the central bank room to support further economic growth.
Garima Kapoor, an economist at Elara Securities, expects another rate cut in the future. Kapoor pointed out that inflation is not likely to rise significantly, providing room for further easing.
The RBI also announced plans to conduct open market operations, buying 1 trillion rupees ($11.14 billion) in bonds this month. Additionally, the bank will conduct $5 billion in forex swaps to increase liquidity in the banking system and help lower interest rates reach the economy.
After the announcement, India’s benchmark 10-year bond yield fell by 5 basis points, but it later stabilized at 6.4841%. The rupee also saw a slight dip, while Indian stock indexes rose by 0.4%.
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