Mumbai: In a decisive and confidence-laden move that aligns squarely with Prime Minister Narendra Modi’s “development-first” economic doctrine, the Reserve Bank of India on Friday delivered a 25-basis-point policy rate cut—its fourth since February—despite a weakening rupee, global trade turbulence and nagging export softness.
The reduction, which brings the repo rate down from 5.50% to 5.25%, startled sections of the financial markets but underscored the central bank’s conviction that India’s macroeconomic base is strong enough to support a fresh burst of growth momentum. The Monetary Policy Committee voted unanimously for the cut, a rare display of cohesion in a period marked by global volatility.
Governor Sanjay Malhotra called the move a “considered and calibrated decision” shaped by evolving domestic fundamentals, a rapidly strengthening growth profile, and a sharply softening inflation outlook.The policy stance remains neutral, with the Standing Deposit Facility now at 5% and the Marginal Standing Facility and Bank Rate at 5.50%.
The RBI’s decision—taken against the backdrop of a sliding rupee and choppy external sentiment—echoes the government’s broader policy philosophy: sustain high-quality growth, expand domestic capacity, and steer India inexorably toward its goal of becoming the world’s third-largest economy.Stronger corporate balance sheets, bigger investment pipelines, rising tax buoyancy from GST reforms, and improving financial-sector resilience have emboldened policymakers to reinforce growth even amid external risks.
Last week’s IMF reclassification of India’s exchange-rate regime from “stabilised” to “crawl-like” added to global chatter about currency management. Yet the RBI clearly signalled its comfort with India’s external buffers, pointing to robust reserves of US$686.2 billion and a current account deficit expected to remain modest through FY26.The central bank upgraded its FY26 GDP growth forecast sharply to 7.3%, from 6.8% earlier, crediting strong kharif output, improved rabi prospects, durable consumption, and steady investment flows. High-frequency indicators, Malhotra noted, show economic activity holding firm in Q3.
Inflation, meanwhile, appears to be firmly tamed. With food prices easing, reservoirs full, soil moisture favourable and global commodity prices softening, the RBI now expects CPI inflation to fall to just 2% in FY26—a level not seen in decades. Underlying inflation is even lower, once precious-metals distortions are stripped out.To ensure that the rate cut transmits meaningfully, the RBI will inject durable liquidity through OMO purchases of Rs 1 lakh crore in government securities and a 3-year USD/INR buy-sell swap of US$ 5 billion this month.
The Governor reaffirmed the central bank’s commitment to maintain adequate liquidity and safeguard financial stability, pointing to banks’ robust asset quality and profitability.With US tariff risks, retreating global trade and currency swings clouding the outlook, the RBI’s message is unequivocal: India’s domestic engines of growth remain strong, inflation is firmly under control, and the central bank is prepared to act boldly and independently—even contrarily—to protect the country’s economic trajectory.
