Buoyed by stronger-than-expected economic momentum and a steady cooling in inflation, the Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday unanimously cut the repo rate by 25 basis points (bps) to 5.25 per cent, a move that is likely to bring down lending and deposit rates across the banking system.The reduction — the first after two consecutive pauses — signals a calibrated shift towards supporting growth at a time when the rupee has depreciated and breached the 90-mark against the dollar.The central bank said the combination of robust GDP numbers and a benign inflation trajectory created the policy space to pivot toward accommodation. The growth engine has been firing ahead of expectations, prompting the RBI to sharply lift its GDP projection for FY26 by 50 bps to 7.3 per cent from 6.8 per cent earlier. At the same time, headline inflation has continued to ease, allowing the central bank to trim its Consumer Price Index (CPI) forecast to 2 per cent from 2.6 per cent.With inflation now well anchored and growth proving resilient, the central bank noted that a modest rate cut would help reinforce the positive momentum in investment and consumption without jeopardising price stability. This repo rate cut, the first since June 2025, when the key policy rate was reduced by 50 bps, is likely to ease borrowing costs and boost consumption and investment. Equated monthly instalments (EMIs) on home, vehicle, personal corporate and small business loans are set to decline with the latest cut.With this, the repo rate has been trimmed by 100 bps in 2025-26, from 6.25 per cent to 5.25 per cent.While announcing the monetary policy, RBI Governor Sanjay Malhotra said that inflation at a benign 2.2 per cent and growth at 8 per cent during the first half of FY2026 present a “rare Goldilocks period”.“The growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum. Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 bps to 5.25 per cent,” Malhotra said.Story continues below this adThe six-member rate-setting panel, by a 5:1 majority, also decided to maintain the neutral stance, with external MPC member Ram Singh voting for a shift to an accommodative stance.While the RBI raised its FY26 growth projection, it revised upward the GDP forecast for October–December to 7 per cent from 6.4 per cent and for January–March 2026 to 6.5 per cent from 6.4 per cent. However, growth in Q3 and Q4 FY26 remain below the 8.2 per cent seen in July-September 2025. “Growth, while remaining resilient, is expected to soften somewhat,” Malhotra said.RBI’s Deputy Governor Poonam Gupta attributed the anticipated moderation in the growth to the high base effect. “When one is talking about softening, it is from these very high levels. Sectorally, I think the outlook is very resilient for each of the sectors,” Gupta stated.The RBI has revised down its inflation projection for Q3 FY26 to 0.6 per cent from 1.8 per cent, and for Q4 FY26 to 2.9 per cent from 4 per cent. The inflation estimate for Q1 FY27 has also been reduced to 3.9 per cent from 4.5 per cent earlier.Story continues below this adAt the post policy press conference, when asked whether easing inflation would provide the MPC additional space to support growth, Malhotra declined to comment, saying that would amount to speculation.“We are at a neutral (stance) today. The important thing is that inflation has been benign. If you exclude food, which has been volatile, inflation has been at 3-3.5 per cent. Going forward, if you exclude gold and silver, our expectation is that it is going to be very benign. Now, whether it opens up policy for further rate cuts… that would be getting into speculation, and I don’t want to get into that,” he told reporters.When sought comments on the rupee, which breached the psychological 90-mark on Wednesday, Malhotra said the RBI does not target any specific levels for the currency.“We allow the markets to determine the prices. We believe that the markets, in the long run especially, are very efficient. It’s a very deep market. We saw this earlier in February. The rupee to dollar had climbed to almost 88 and within a period of three months, it came back to below 84 so these fluctuations, this volatility does happen, can happen,” the RBI Governor said.Story continues below this adThe RBI’s effort has always been to reduce any abnormal or excessive volatility, he said. The rupee closed at 89.95 against the dollar on Friday, compared to the previous close of 89.89.Responding to a question on whether the RBI’s threshold for forex market intervention had changed, the Governor said, “We don’t think there has been any conscious attempt to change our tolerance to volatility.”The rupee closed at 89.95 against the dollar on Friday, compared to the previous close of 89.89.To inject durable liquidity into the market, the central bank also announced open market operations (OMO) purchases of government securities worth Rs 1 lakh crore. It will also conduct a three-year USD/INR Buy Sell swap amounting to USD 5 billion during the current month.