RBI cut the repo rate by 25 bps to 5.25% and retained a neutral stance.
FY26 real GDP growth forecast was revised upward to 7.3%, supported by resilient domestic demand and easing inflation.
Current account deficit moderated to 1.3% of GDP in Q2, with the RBI expecting strong services exports and remittances to keep the external position stable despite global uncertainties.
The Reserve Bank of India’s Monetary Policy Committee (MPC) concluded its final review of the year on December 5. In a unanimous decision, the six-member panel cut the benchmark repo rate by 25 basis points to 5.25% while maintaining a neutral policy stance. MPC member Ram Singh, however, noted that the stance should shift from neutral to accommodative.
“The growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support growth momentum,” RBI Governor Sanjay Malhotra said in the policy statement. Market participants were divided ahead of the announcement, with some expecting a quarter-point cut and others anticipating a pause given resilient real GDP growth.
1 December 2025
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The standing deposit facility (SDF) rate is now adjusted to 5.00%, while the marginal standing facility (MSF) rate and Bank Rate stand at 5.50%.
"The cut is driven by inflation falling below the lower band of inflation targeting range. Another factor was that GDP growth is expected to ease below 7% inH1FY27," Gaura Sengupta, chief economist at IDFC First Bank said. "The omo purchase of $1 trilliion shows that RBI is targeting 1% of NDTL banking system liquidity."
Malhotra said the central bank has revised its FY26 real GDP growth forecast upward to 7.3%, from earlier projections of 6.8%, citing resilient domestic demand and easing inflation. “The first half of FY26 has been a period of goldilocks,” he said, while noting that “the evolving geopolitical environment continues to weigh on the outlook.” High-frequency indicators suggest domestic economic activity is likely to maintain momentum in the October–December quarter (Q3), he said, though signs of weakness are emerging in a few leading indicators.
“Rural demand continues to be robust while urban demand is recovering steadily,” Malhotra added. “Investment activity remains healthy with private investment gaining steam on the back of expansion in non-food bank credit and high capacity utilisation.” The GDP projection for Q3 FY26 stands at 7.0%.
On the external sector, Malhotra said India’s current account deficit moderated to 1.3% of GDP in Q2 FY26 from 2.2% in the same period last year. “Healthy services exports and strong remittance receipts are expected to keep the CAD modest during 2025-26,” he said.
Madan Sabnavis, chief economist at Bank of Baroda said says the likelihood of another rate cut in the next monetary policy is highly likely given the central bank's focus now targetted on growth. "As conditions will be similar in Feb there can be a strong chance of further cut. The focus seems to be on pushing for growth through investment. We need to see how quickly this works out," he said.
Malhotra also highlighted continued strength across the financial system, stressing that capital adequacy, liquidity, asset quality and profitability of scheduled commercial banks remain robust, while NBFC asset quality has improved and credit growth is firming alongside stronger corporate balance sheets.
“Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience and is poised to register high growth. The headroom provided by the inflation outlook has allowed us to remain growth supportive,” Malhotra said in conclusion. “We will continue to meet the productive requirements of the economy in a proactive manner while ensuring macroeconomic stability.”
