(MENAFN- KNN India) New Delhi, Dec 5 (KNN) With retail inflation hitting record low, the Reserve Bank of India (RBI)'s Monetary Policy Committee (MPC) on Friday decided unanimously to cut policy repo rate by 25 basis points (bps) to 5.25% with immediate effect.

"After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to reduce the policy repo rate under the liquidity adjustment facility (LAF) to 5.25 per cent," said RBI Governor Sanjay Malhotra.

The reduction in repo rate is set to provide relief to homebuyers and other borrowers besides providing further growth momentum to the economy.

On the rationale for monetary policy decisions, the RBI Governor said that headline inflation has eased significantly and is likely to be softer than the earlier projections, primarily on account of the exceptionally benign food prices.

"Both headline and core inflation are expected to be around the 4 per cent target during the first half of 2026-27. The underlying inflation pressures are even lower as the impact of increase in price of precious metals is about 50 bps. Growth, while remaining resilient, is expected to soften somewhat," he said.

Malhotra said that the growth-inflation balance continues to provide the policy space to support the growth momentum.

"Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 bps to 5.25 per cent," he noted while announcing the bi-monthly monetary policy.

The MPC also decided to continue with the 'neutral' stance.

The monetary policy statement said that high-frequency indicators suggest that domestic economic activity is holding up in Q3 (October-December period of FY26), although there are some emerging signs of weakness in a few leading indicators.

"GST rationalisation and festival-related spending supported domestic demand during October-November. Rural demand continues to be robust while urban demand is recovering steadily. Investment activity remains healthy with private investment gaining steam on the back of expansion in non-food bank credit and high capacity utilisation," the RBI Governor said.

Commenting on the MPC decisions, Radhika Rao, Executive Director and Senior Economist at DBS Bank said,“The RBI delivered on most fronts on Friday, lowering rates as per our expectations and taking pro-liquidity steps, as well as measures to prevent a re-hardening in borrowing costs."

Anitha Rangan, Chief Economist, RBL Bank said that RBI is perhaps once again front loading its rate cut by announcing 25 bps reduction in repo rate and maintaining a neutral stance along with Rs 1 lakh crore OMO (open market operations).

The RBI has revised India's real GDP growth forecast for current financial year 2025-26 to 7.3% from 6.8% estimated earlier. The inflation rate for FY26 is seen at 2% amid significant decline in food prices.

Beating most estimates, the Indian economy recorded 8.2% annualised growth in July-September quarter (Q2) of current fiscal with sectors such as manufacturing and services powering the surge. Headline inflation dropped to 0.25% in October this year, primarily driven by record low food prices.

(KNN Bureau)

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