MUMBAI, Dec 5 (Reuters) – The Reserve Bank of India (RBI) lowered its benchmark repo rate by 25 basis points on Friday, matching market expectations, as historically low retail inflation and a favorable price outlook gave it enough space to boost economic growth.
The RBI also decided to conduct open market operations of 1 trillion rupees ($11.14 billion) and $5 billion in forex swaps to add liquidity and speed up the transmission of lower rates.
The six-member Monetary Policy Committee unanimously voted to cut the repo rate (INREPO=ECI), opening a new rate of 5.25% and reducing the rate by a total of 125 basis points from February 2025. It had kept rates on hold in August and October.
RBI Governor Sanjay Malhotra said in a video address that the Indian economy is facing a period of “rare gold lock.”
Since October, inflation in the Indian economy has declined rapidly, breaching the central bank’s lower limit of tolerance, Malhotra said, adding that growth has remained robust.
A Reuters poll conducted ahead of last week’s GDP data had most economists expecting a quarter-point cut in the repo rate at the policy meeting, followed by a pause until 2026.
However, some analysts and market participants had downplayed their chances of a rate cut after data showed the South Asian economy expanded at a faster-than-expected pace of 8.2% in the July-September quarter.
On the other hand, retail inflation remained at a record low of 0.25% in October and is expected to remain subdued in the coming months.
The MPC kept its monetary policy stance unchanged at ‘neutral.’
At the time, $1 was equivalent to 89.8020 Indian rupees
