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    RBI Surprises Markets With 25 bps Rate Cut as Inflation Drops to Record Low

    5 months ago

    The Reserve Bank of India on Friday delivered an unexpected 25-basis-point cut in the policy repo rate, bringing it down to 5.25%, after inflation fell sharply to 0.25% in October. The decision, taken unanimously by all six members of the Monetary Policy Committee, came as the RBI also revised its economic outlook upward.

    The central bank now projects GDP growth for 2025–26 at 7.3%, compared with 6.8% estimated in October. Inflation expectations for the same period have been lowered to 2%, signalling what economists describe as a “Goldilocks” phase of strong growth and subdued price pressures.

    To support smoother transmission of the rate cut, the RBI announced liquidity measures worth nearly ₹1.5 lakh crore for December through government securities purchases and USD–INR swap operations. The move is aimed at helping banks reduce lending rates more effectively.

    With the rate cut, borrowers with floating-rate home and personal loans are expected to see lower EMIs in the coming weeks. Equity and bond markets also stand to gain, as lower interest rates generally boost investment sentiment and raise the value of existing debt holdings.

     

    The RBI’s latest action indicates that the rate-cutting cycle may be nearing its end, but policymakers emphasised that the economic environment remains favourable for both growth and financial stability.

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