RBI MPC cuts repo rate by 25 bps to 5.25%; announces ₹1 lakh crore OMO purchases

The Reserve Bank of India (RBI), led by Governor Sanjay Malhotra, on Friday cut the repo rate by 25 basis points to 5.25% after its three-day policy review held from December 3 to 5. The Monetary Policy Committee’s (MPC) decision, which was “unanimous”, was broadly in line with market expectations, with many economists anticipating a 25–26 bps cut amid a sharp moderation in inflation.

With this move, the apex bank has delivered four repo rate cuts this year—25 bps each in February and April, a sharper 50 bps cut in June, and another 25 bps in December—bringing the total reduction to 125 bps. The central bank had maintained status quo since the June meeting, keeping rates unchanged at its August and October 2025 reviews.

“The MPC met on December 3, 4 and 5 to deliberate on the policy rate. After a detailed assessment of evolving macroeconomic conditions and the outlook, the Committee voted unanimously to reduce the policy repo rate by 25 basis points to 5.25% with immediate effect. Consequently, the SDF stands adjusted to 5.0%, while the MSF and the Bank Rate are revised to 5.5%. The MPC also decided to continue with the neutral stance,” RBI Governor Sanjay Malhotra said.

In a bid to inject durable liquidity into the system, RBI has decided to conduct OMO purchases of government securities amounting to ₹1 lakh crore, as well as a three-year dollar–rupee sell/buy swap of $5 billion in December, he said.

The MPC noted that headline inflation has eased significantly and is likely to be softer than earlier projections, primarily due to exceptionally benign food prices. Projections for average headline inflation for this year and Q1 next year have been revised downwards. Core inflation, which had risen steadily since Q1 last year, eased marginally in Q2 and is expected to remain anchored. Both headline and core inflation are expected to remain at or below target in the first half of next year. Notably, underlying inflation pressures are even lower, as around 50 basis points of the current print reflect higher precious metal prices.

“Growth remains resilient, though it is expected to moderate slightly. The growth–inflation balance, supported by a benign inflation outlook, continues to provide policy space to support the growth momentum. Accordingly, the MPC unanimously voted to reduce the repo rate by 25 basis points to 5.25% and maintain the neutral stance,” Malhotra said.

He said that real GDP grew by 8.2% in Q2, a six-quarter high, driven by resilient domestic demand amid global uncertainties. On the supply side, GVA rose 8.1%, supported by buoyant industry and services. Economic activity has benefitted from GST and income-tax rationalisation, softer crude prices, front-loaded government capex and supportive monetary and financial conditions.

“High-frequency indicators suggest domestic activity remains steady. Rural demand is robust; urban demand is recovering; and investment activity is healthy, supported by rising non-food bank credit and high capacity utilisation of around 75%. Merchandise exports softened in October amid weak external demand, while services exports moderated.”

RBI has projected real GDP growth for the year at 7.3%—about 50 bps higher than earlier estimates. Q3 is projected at 7.0%, Q4 at 6.5%, and for next year, Q1 at 6.7% and Q2 at 6.8%. Risks are evenly balanced. CPI inflation for the year is pegged at 2.0%, with Q3 at 0.6% and Q4 at 2.9%.

For next year, CPI inflation is projected at 3.9% in Q1 and 4.0% in Q2. “The underlying inflation pressures remain even lower, with nearly 50 basis points of the current reading attributable to precious metals. The risks to the inflation outlook are evenly balanced,” said the RBI Governor.

The policy announcement comes just days ahead of the US Federal Open Market Committee’s final meeting of the year, scheduled for December 9–10. In 2025, the US Federal Reserve delivered two rate cuts—each of 25 basis points—in September and October. At its last meeting on October 29, the Fed reduced the federal funds rate by 25 bps, bringing it down to the 3.75–4.00% range.