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 Despite Weak Rupee, Signals Strong Confidence in Growth

New Delhi: Shrugging off concerns over the sharp depreciation of the rupee, the Reserve Bank of India (RBI) on Friday cut the key policy repo rate by 25 basis points to 5.25 per cent, aiming to further propel economic growth amid easing inflation and robust GDP momentum. The rate cut, announced as part of the fifth bi-monthly monetary policy review for the current financial year, is expected to bring relief to borrowers by making home loans, auto loans and commercial credit cheaper.

RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) unanimously voted in favour of the rate cut and retained a neutral policy stance, signalling flexibility for future action based on evolving macroeconomic conditions. “The decision reflects the MPC’s confidence in the strength of India’s growth outlook and the durable softening of inflationary pressures,” Malhotra said.

Inflation at Historic Lows, Growth at Six-Quarter High

The policy easing comes at a time when consumer price index (CPI)-based retail inflation has remained below the government’s lower tolerance band of 2 per cent for the past three months. Inflation plunged to a historic low of just 0.25 per cent in October 2025, the lowest level since the CPI series was introduced. At the same time, India’s economy has delivered stronger-than-expected growth of 8.2 per cent in the second quarter of 2025–26, marking a six-quarter high, driven by resilient consumption, manufacturing recovery and infrastructure spending. Reflecting this momentum, the RBI sharply revised its GDP growth projection for the current financial year to 7.3 per cent from the earlier estimate of 6.8 per cent.

Rupee at Record Low, But RBI Stays Focused on Growth

The rate cut comes despite mounting concerns over the currency front. The rupee recently slipped past the psychological 90-mark against the US dollar, touching an all-time low earlier this week. The Indian currency has depreciated by nearly 5 per cent so far in 2025, making imports—particularly crude oil and capital goods—more expensive and stoking fears of imported inflation.

However, the central bank appeared confident that subdued domestic inflation and improving growth dynamics provide sufficient space for monetary easing. Under the RBI’s inflation-targeting framework, it is mandated to maintain CPI inflation at 4 per cent, with a tolerance band of 2 per cent on either side.

Cumulative Rate Cuts This Year

With Friday’s decision, the RBI has now cut the repo rate three times in the current easing cycle—25 bps in February, 25 bps in April, and a sharper 50 bps cut in June, as inflation continued its downward trajectory. Retail inflation has remained below the 4 per cent target since February 2025, aided by easing food prices, improved supply conditions and a favourable base effect.

Boost for Borrowers and Investment

Economists expect the latest rate reduction to support private investment, boost real estate demand, revive automobile sales and lower borrowing costs for businesses, especially MSMEs. Banks are also likely to pass on the benefit through lower lending rates in the coming weeks. The RBI’s decision underscores its confidence in India’s growth resilience, even as global uncertainties, geopolitical tensions and currency volatility continue to pose risks on the external front.