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RBI Cuts Repo Rate by 0.25pp, Keeps Growth-Inflation Path Moderate

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  //business-finance.news-articles.net/content/202 .. 0-25pp-keeps-growth-inflation-path-moderate.html
  Published in Business and Finance on Friday, December 5th 2025 at 1:01 GMT by Zee Business

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RBI Cuts Repo Rate by 0.25 pp – Sanjay Malhotra Sets a Moderate Growth‑Inflation Path

On June 7 2024 the Reserve Bank of India (RBI) announced a 0.25‑percentage‑point cut in its key policy repo rate, bringing the rate down to 6.75 % from 7.0 %. The decision was made in a meeting of the Monetary Policy Committee (MPC) chaired by Governor Shaktikanta Das. RBI’s new policy rate is the 12th cut in the last three years, and the move follows a string of rate reductions aimed at countering a slowdown in domestic demand while keeping inflation within the 4 % target band.

Why the Cut?

The RBI’s decision was rooted in a combination of domestic and global economic signals. On the domestic front, the economy had been showing signs of cooling after a robust rebound from the pandemic slump, with real GDP growth easing from the 8 %‑plus pace seen in 2021–22 to around 6 % in the first half of the fiscal year. Commodity prices—especially oil and wheat—continued to rise, and supply‑chain bottlenecks were still present. In the global context, the U.S. Federal Reserve had begun raising rates aggressively, pushing international capital away from emerging markets and raising the cost of borrowing abroad.

Against this backdrop, the RBI opted to keep its policy stance “supportive but cautious.” By cutting the repo rate, the bank aimed to lower the cost of credit for banks, which in turn should reduce borrowing costs for households and firms, thereby stimulating spending and investment. The reverse‑repo rate was also trimmed, signalling a coordinated tightening of liquidity outflows.

Sanjay Malhotra’s Outlook

In a press briefing following the meeting, RBI Deputy Governor Sanjay Malhotra laid out the institution’s updated growth and inflation projections for the upcoming fiscal year. Malhotra underscored that the RBI’s “medium‑term outlook remains anchored in the data, and we will adjust policy only if necessary.”

GDP Growth

The RBI projects India’s real GDP to grow by 6.5 % in FY 2024–25, slightly below the 6.75 % growth it had forecast earlier in the year. The slightly lower figure reflects a cautious stance on domestic consumption, which remains vulnerable to a lingering slump in the service sector and weak household incomes. Despite this, the bank expects growth to remain robust relative to global peers, driven by continued fiscal stimulus, strong agricultural output, and a recovering manufacturing base.

Inflation

On the inflation side, the RBI’s projection for headline inflation (CPI) is 4.6 % for FY 2024–25, while core inflation (which excludes volatile food and energy items) is projected at 4.4 %. These numbers sit comfortably within the bank’s 4 % ± 2 % target band. Malhotra noted that the inflationary environment remains under control thanks to a gradual normalization of food prices, modest oil price fluctuations, and the effective functioning of the central bank’s forward‑looking tools such as the “flood‑gate” mechanism that regulates credit growth.

The RBI also highlighted that the core inflation trend is expected to drift lower toward the lower end of the target range by the end of FY 2025, thanks to a combination of domestic supply improvements and global commodity price stabilization.

Key Takeaways for Markets and Policy

1. Accommodative Stance Persists – The 0.25 % repo cut signals that the RBI will continue to support the economy until growth fully recovers. The bank’s “policy horizon” remains at 1 – 2 years, meaning the policy rate could rise again only if inflation trends upward.

2. Credit Expansion on the Horizon – With lower policy rates, banks are expected to offer cheaper loans, encouraging consumption of durable goods and boosting manufacturing demand. This could help lift employment levels, particularly in the informal sector.

3. Currency and Reserve Outlook – The RBI will keep a close eye on the rupee’s exchange rate, as foreign‑exchange volatility can affect import‑dependent sectors. The central bank’s policy decisions will also influence its reserve asset composition, especially in light of global bond‑yield moves.

4. Risk of Inflationary Surprise – While current inflation is comfortably inside the target band, a sudden spike in global commodity prices could threaten the RBI’s inflation outlook. The bank’s policy toolkit—particularly the “flood‑gate” and its “stress‑testing” framework—will help mitigate such shocks.

5. Interplay with Fiscal Policy – The RBI’s projections underline the importance of a supportive fiscal framework. Continued government spending on infrastructure and social programs will be essential to translate the lower policy rates into tangible economic growth.

Context from Other Sources

The article cites a press release from the RBI’s website that outlines the policy rate decision and a link to the “Monetary Policy Statement” (MPS) issued earlier that year. The MPS confirms the RBI’s inflation‑targeting framework and highlights the bank’s readiness to adjust policy as needed. It also references the RBI’s 2023‑24 fiscal budget, which contained provisions for a higher fiscal deficit to support growth, thereby complementing the RBI’s monetary stance.

Another linked article, sourced from a reputable business news outlet, provides a deeper dive into the impact of the repo cut on bank reserves and the broader financial system. It notes that the RBI’s liquidity‑management tools, such as the Standing Repo Facility (SRF), will help ensure that banks have adequate liquidity while still benefiting from lower borrowing costs.

Bottom Line

The RBI’s repo rate cut reflects a careful balance between supporting growth and containing inflation. With GDP projected at 6.5 % and inflation expected to hover around 4.6 %, the bank remains confident that the economy can navigate through current headwinds. For policymakers, investors, and businesses, the key takeaway is that the RBI’s policy environment remains accommodative, with a clear focus on keeping inflation within its target band while nurturing the recovery.