Door open for more rate cuts

REPO RATE REDUCED BY 25 BPS; LIQUIDITY GETS A₹1.45-LAKH-CR BOOST, FY26 GDP PROJECTION UP TO 7.3%; INFLATION ESTIMATE CUT TO 2%

- JOYDEEP GHOSH

IT WAS A googly that caught markets off guard. After the sharp slide in the rupee, speculation had mounted that the central bank was nearing the end of its rate-easing cycle.

But the six-member Monetary Policy Committee (MPC) had other ideas, voting unanimously on Friday to cut the repo rate by 25 basis points to 5.25%.

The MPC also left the door open for further easing, while announcing measures to inject up to ₹1.45 lakh crore of liquidity into the banking system. RBI Governor Sanjay Malhotra described the current phase as a “Goldilocks period” for the economy, with inflation at a benign 2.2% and growth at 8% in the first half of FY26.

Explaining the rationale for the rate cut, Malhotra said the favourable inflation backdrop provided “policy space to support growth momentum.” At a later press briefing, he added that with inflation expected to remain benign, interest rates were more likely to stay “low rather than high”.

The RBI has also revised its macro projections. It raised its FY26 growth forecast to 7.3% from 6.8% and cut its inflation projection sharply to 2% from 2.6%.