Mumbai/New Delhi, Dec 5 (UNI) The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday reduced the key repo rate by 25 basis points to 5.25 per cent, citing the need to support growth amid easing inflation.
Announcing the MPC’s decisions in Mumbai, RBI) Governor Sanjay Malhotra emphasised the need for banks and non-banking financial companies (NBFCs) to place customers at the centre of their operations.
He urged institutions to strengthen customer service frameworks and minimise grievance levels. The MPC’s decision to cut the policy rate aims to support economic momentum while ensuring financial stability, the Governor noted.
The central bank simultaneously announced major liquidity measures, including Rs1 lakh crore in government-security purchases through Open Market Operations and a three-year, USD 5-billion dollar–rupee swap to be conducted in December.
Economists broadly welcomed the policy move. Ritesh Taksali, Chief Investment Officer at Edelweiss Life Insurance, said the decision reinforces growth momentum at a time when inflation remains subdued.
He noted that liquidity infusion through OMOs and foreign-exchange swaps is necessary as currency-defence operations drain system liquidity. According to him, the RBI’s dovish pivot is aligned with supporting bond yields.
Offering a macroeconomic perspective, Dr. Esha Khanna of the Sarla Anil Modi School of Economics (SVKM’s NMIMS, Mumbai) highlighted strong GDP growth, lower inflation projections, robust credit expansion, healthy financial-sector indicators and foreign-exchange reserves of USD 686.2 billion—equivalent to more than 11 months of import cover. These, she said, provided ample policy space for easing.
She added that the repo-rate reduction and OMO purchases will help offset liquidity pressures that arise when the RBI intervenes in the forex market to stabilise the rupee.
Khanna also observed that while borrowing costs are declining as transmission improves, banks remain under pressure because of slower deposit growth and shrinking net-interest margins.
She said the current environment favours borrowers in the bond market but requires vigilance due to global geo-economic fragmentation, trade-policy uncertainty, rupee depreciation risks and evolving inflation trajectories.
Gautam Kalia, Head of Investment and Solutions at Mirae Asset ShareKhan, said the rate and liquidity actions were broadly in line with market expectations. He noted that the OMO purchases and dollar–rupee swap were “surprisingly positive” for bond yields, with the benchmark 10-year government security yield falling about four basis points immediately after the announcement. He added that these steps, along with earlier measures such as the cash-reserve-ratio cut, should improve transmission of policy easing.
Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Group, said the RBI’s move reflects stronger-than-expected growth and consistently lower inflation prints, which allowed the central bank to revise its inflation trajectory downward.
He noted that easier policy could exert pressure on the rupee, but large-scale bond purchases give the RBI room to intervene in currency markets without tightening domestic liquidity. He added that if inflation remains below projections, an additional 25-basis-point cut is possible, and the current stance is constructive for both equity and bond markets.
In the real estate sector, Nitin Bavisi, Chief Financial Officer of Ajmera Realty, said the rate cut is timely given low inflation and strong economic momentum.
He said lower rates are likely to improve liquidity, reduce borrowing costs and support demand for upcoming housing launches. Softer interest rates, he noted, strengthen home-loan affordability and sentiment while reducing developers’ financing costs and accelerating project execution. With cumulative cuts of 125 basis points in 2025, he expects renewed consumption and investment momentum, with scope for further calibrated easing if inflation remains contained.
India’s economic mood turned visibly brighter after the RBI’s repo rate cut, signalling the beginning of a softer interest-rate phase after months of tight financial conditions.
The unanimous decision by the Monetary Policy Committee (MPC) came alongside stronger growth projections and inflation staying comfortably within the RBI’s expectations.
The central bank’s message was straightforward: domestic growth is holding firm, inflation has cooled and policy space is now available to support demand without risking financial stability.
With Gross Domestic Product (GDP) growth upgraded and inflation easing to 0.3 per cent in October, the RBI said it would continue with a neutral stance while ensuring liquidity remains comfortable.
The rupee, which has been under pressure recently, showed signs of stability after the policy announcement, touching 89.92 before closing at 89.98 against the dollar.
Bond yields also eased through the day, helped by the RBI’s plan to infuse liquidity.
Even though rate cuts usually weigh on the rupee, analysts said Friday’s movement reflected growing confidence that India’s macro fundamentals remain strong, supported by solid foreign exchange reserves of USD 686.2 billion and steady domestic demand.
