India CB cuts rate, boosts liquidity to support 'goldilocks' economy

The Reserve Bank of India (RBI) cut its key repo rate by 25 basis points on Friday and left the door open for further easing as it took steps to boost banking-sector liquidity by up to $16 billion to support a "goldilocks" economy.

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The world's fifth-largest economy is under pressure from punitive tariffs imposed by US President Donald Trump, widening its trade deficit and pushing its currency to a record low.

Global headwinds have prompted Indian Prime Minister Narendra Modi's administration to step up domestic economic reforms, including paring consumer taxes, changing labour rules and easing financial sector regulations.

The RBI's six-member monetary policy committee voted unanimously to lower the repo rate to 5.25 per cent, in line with a consensus view, and maintained a "neutral" stance, suggesting room for further rate cuts.

The central bank has now cut rates by a total of 125 basis points since February 2025, the most aggressive easing since 2019. It held rates in August and October.

The Indian economy is in a "rare goldilocks" period, RBI Governor Sanjay Malhotra said in a video address.

Since October, India's economy has experienced rapid disinflation leading to a breach of the central bank's lower threshold of tolerance, said Malhotra, adding that growth has remained strong.