The Reserve Bank of India delivered a unanimous 25 bps repo rate cut to 5.25 percent while unveiling a liquidity-boosting package that includes Rs 1 lakh crore of government bond OMO purchases and a 3-year USD/INR buy-sell swap. Governor Sanjay Malhotra said the central bank remains committed to providing sufficient durable liquidity, noting that forex reserves are healthy at $686 billion. The RBI raised its FY26 GDP growth forecast to 7.3 percent, citing healthy rural demand, improving urban consumption and strengthening private-sector activity. Malhotra described the year’s growth-inflation dynamics as a rare “goldilocks period”, with credit growth firming across industry.
MPC cuts repo rate 25 bps to 5.25% in a unanimous vote; stance stays neutral: The committee lowered the policy rate after assessing rapid disinflation and resilient domestic activity, noting that both headline and core inflation are expected to remain near or below 4 percent through 1HFY27. Governor Sanjay Malhotra said the growth–inflation alignment provides rare policy space to support momentum even as growth may soften modestly ahead.
RBI launches a liquidity-boosting package: Rs 1 lakh crore OMOs + 3-year USD/INR swap: The central bank will purchase Rs 1 lakh crore of government securities this month and execute a USD 5 billion buy-sell swap to inject durable liquidity. Malhotra clarified that OMOs aim to ensure system liquidity, not to influence G-Sec yields, and emphasised the central bank’s commitment to maintaining adequate durable liquidity conditions.
FY26 GDP growth forecast raised sharply to 7.3%; early FY27 estimates upgraded: Real GDP is now projected to grow 7.3 percent in FY26 (vs 6.8 percent earlier), with Q3 at 7.0 percent and Q4 at 6.5 percent. The RBI expects Q1 and Q2 FY27 growth at 6.7 percent and 6.8 percent, driven by strong investment activity, robust rural demand and steadily improving urban consumption.
Q2FY26 growth print at 8.2% marks a six-quarter high and bolsters the case for a rate cut: The economy expanded strongly on the back of GST rationalisation, festive spending and benign inflation. Industrial and services sectors recorded buoyant activity, while GVA rose 8.1 percent. The print exceeded both the RBI’s 7 percent projection and economist polls, underscoring broad-based resilience.
Inflation outlook revised sharply lower following a historic collapse in food prices: FY26 CPI inflation has been cut to 2.0 percent (from 2.6 percent), with Q3 at 0.6 percent and Q4 at 2.9 percent. The Governor noted that inflation has become more generalised on the downside, with food deflation deepening and precious-metal-driven pressures easing. Underlying inflation pressures are “even lower” after adjusting for gold.
October CPI touched 0.3% -- the lowest on record under FIT -- reinforcing policy space: Headline inflation fell sharply as vegetables, cereals and spices saw steep price corrections. Nearly 80 percent of the CPI basket recorded inflation below 4 percent, a dramatic improvement from the previous year. This unprecedented softness delivered the first breach of the lower tolerance band since FIT began.
Governor Malhotra hails a “rare goldilocks period” as India ends 2025 with strong growth and benign inflation
Malhotra said India “looks back at the year with satisfaction” as H1FY26 delivered GDP growth of 8.0 percent alongside inflation of just 2.2 percent. He described the macro environment as unusually favourable despite global uncertainties, enabling the RBI to remain growth-supportive while maintaining stability.
Domestic demand remains healthy; rural consumption robust, urban recovery steady: Rural demand indicators -- including two-wheeler sales and lower MGNREGA utilisation -- show improvement in farm-sector employment. Urban demand has been lifted by GST cuts and festive spending, with passenger vehicle sales and air passenger traffic registering firm growth.
Investment cycle strengthens as private investment gains momentum: High capacity utilisation, rising non-food credit to industry and an 8.7 percent expansion in capital-goods imports point to strengthening investment activity. Manufacturing companies’ fixed-asset growth accelerated to nine percent in H1, signalling that private capex is starting to deepen.
External sector remains resilient despite October export weakness: CAD moderated sharply to 1.3 percent of GDP in Q2FY26 due to strong services exports and robust remittances. Forex reserves at USD 686.2 billion provide over 11 months of import cover. Merchandise exports weakened in October, but the overall external position remains stable.
Financial system stable: banks and NBFCs report strong capital buffers and improving asset quality
SCBs’ CRAR stands at 17.24 percent with GNPA at 2.05 percent and NNPA at 0.48 percent, while liquidity buffers remain high. NBFCs too exhibit healthy capitalisation and improving NPAs, though margins have compressed due to lower lending rates. Credit flow to the commercial sector has strengthened materially.
RBI flags rising ombudsman pendency; launches a two-month grievance-resolution campaign: Malhotra urged banks and regulated entities to make customer service “central to their operations”, noting a rise in consumer complaints. The RBI will conduct a January-February campaign to clear all grievances pending for more than a month and reinforce citizen-centric service standards.
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