Growth Support Continues
RBI Governor Sanjay Malhotra said that falling inflation allows the central bank to support growth. He said the Indian economy remains strong despite challenging global conditions. The economy is moving toward higher growth. The RBI will continue to support production needs. It will also ensure that banks pass on the benefits of rate cuts.
Repo Rate Cut and Liquidity Boost
The central bank has cut the repo rate by 0.25% after six months. Rs. 1 lakh crore is being injected into the banking sector to prop up the economy, reeling from high US tariffs. This could lead to a reduction in interest rates on housing, auto and other loans. Exports have been brought down by the high tariffs imposed by the US government while increasing the trade deficit. Rupee has moved to an all-time low against the dollar.
Possibility of Future Rate Cuts
The six-member Monetary Policy Committee, led by Sanjay Malhotra, decided unanimously to cut the repo rate by 25 basis points to 5.25%. A neutral stance keeps room for any future cuts in the rate.
Supporting Government Measures
The government has relaxed labor regulations and eased rules in the financial sector after reforms to the GST in September. Analysts add that the moves of the RBI are complementary. A lower repo rate means that banks can borrow at lower interest from the RBI. That enables banks to cut loan rates for consumers and businesses. The lower monthly installments will encourage more borrowing and spur economic activity.
Rs. 1 Lakh Crore Injection in Two Phases
The RBI intends to infuse liquidity with open market purchase operations. The apex bank will purchase government bonds worth Rs. 50,000 crore each on December 11 and 18. It will also buy $5 billion in foreign exchange on December 16. These steps are aimed at ameliorating the liquidity pressures for the banks.
Lower Inflation, Higher Growth
This is the fourth rate cut since February 2025. In all, the RBI has cut the repo rate by 125 bps this year. Retail inflation has slipped to 2.2%, and the economy expanded 8% in the first half of 2025-26. Malhotra termed this as a "goldilocks" situation. The RBI revised its forecast for inflation for the financial year to 2% and growth forecast to 7.3%.
Rates to Remain Low
Mr Malhotra said that so long as the inflation remains low, key rates would remain at low levels. He pointed out that though the tariffs imposed by the US on Indian products have affected such sectors like jewellery, textiles, and shrimp, general economic activity remained unaffected.
No Target for the Rupee
The RBI has not fixed any target range for the rupee in the forex market. It is allowed to find its natural level. These comments came after the dollar reached Rs. 90.
Banking Ombudsman Campaign
The RBI will run a two-month campaign from January to redress complaints pending with the Banking Ombudsman for more than a month.
Exemption of Vehicles and Properties
The rate cut will improve consumer sentiment. Income tax exemptions and GST reforms have already increased spending power. The latest decision will benefit the automobile industry, said SIAM President Shailesh Chandra. Lower loan rates will also make home loans cheaper and encourage house purchases, say real estate associations CREDAI and NAREDCO. Next MPC Meeting The next meeting of the Monetary Policy Committee will take place from February 4-6, 2026.
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