The Reserve Bank of India (RBI) has reduced the repo rate by 0.25%. This move is expected to bring relief to the general public.
With the new rate coming into effect, EMIs on home loans, car loans, and other retail loans are likely to become cheaper. This means consumers will have more money left to spend, which could increase demand and support economic growth.
However, when banks lower lending rates, fixed deposit (FD) interest rates may also decline in the coming months, as banks usually revise both lending and deposit rates together.
The RBI’s Monetary Policy Committee (MPC) held a three-day meeting that began on Wednesday. On Friday, RBI Governor Sanjay Malhotra announced that the repo rate has now been cut to 5.25%.
Repo Rate Reductions Since February
Since February, the RBI has reduced the repo rate by a total of 1% across three rounds. In the previous two review meetings, however, the rate was kept unchanged at 5.5%.
This latest cut became possible because inflation has dropped sharply—retail inflation fell to a decade-low of 0.25% in October, and wholesale inflation also declined by 1.21%.
Inflation Forecast Lowered
The RBI has revised its inflation expectations downward. Retail inflation for FY 2026 is now projected at 2%, compared to the earlier estimate of 2.6%.
Updated retail inflation projections:
Oct–Dec 2025: Reduced from 1.8% to 0.6%
Jan–Mar 2026: Reduced from 4% to 2.9%
Apr–Jun 2026: Reduced from 4.5% to 3.9%
Jul–Sep 2026: Expected to be 4%
GDP Growth Forecast Increased
The RBI has raised its GDP growth forecast for FY 2026 to 7.3%, up from the previous estimate of 6.8%.
Quarter-wise projections:
Oct–Dec 2025: 7%
Jan–Mar 2026: 6.5%
Apr–Jun 2026: 6.7%
Jul–Sep 2026: 6.8%
RBI’s Plan to Boost Liquidity
To strengthen liquidity in the banking system, the RBI has announced major steps. It will inject ₹1 trillion into the market through open market operation (OMO) purchases.
Along with this, the RBI will also increase liquidity by launching a $5 billion tri-monthly USD/INR operation in December.
