The Reserve Bank of India (RBI) has reduced the repo rate by 0.25%, a major step aimed at giving financial relief to the general public.
With this change, EMIs on home loans, car loans, and other retail loans are expected to decrease.
This will leave consumers with more disposable income and may help increase demand, supporting overall economic growth.
However, when banks reduce lending rates, they may also lower interest rates on fixed deposits (FDs).
So, FD rates might decline slightly in the coming months, as banks usually adjust deposit and loan rates together.
The RBI’s Monetary Policy Committee (MPC) held a three-day meeting starting Wednesday.
On Friday, RBI Governor Sanjay Malhotra announced that the repo rate has now been cut to 5.25%.
Repo Rate Cuts, Inflation Trends & Forecasts
Repo Rate Cut by 1% Since February
Since February, the RBI has reduced the repo rate by a total of 1% across three rounds. However, it kept the rate unchanged at 5.5% during the last two reviews.
These cuts were possible because retail inflation fell to a 10-year low of 0.25% in October, and wholesale inflation also dropped by 1.21%.
Inflation Forecast Lowered
The RBI now expects retail inflation to be 2% in FY 2026, compared to the earlier estimate of 2.6%.
Updated inflation projections:
Oct–Dec 2025: Reduced from 1.8% to 0.6%
Jan–Mar 2026: Reduced from 4% to 2.9%
Apr–Jun 2026: Reduced from 4.5% to 3.9%
Jul–Sep 2026: Expected to be 4%
GDP Growth Outlook & Liquidity Measures
GDP Growth Rate Increased
The RBI has raised India’s GDP growth forecast for FY 2026 to 7.3%, up from the earlier estimate of 6.8%.
Quarter-wise growth projections:
Oct–Dec 2025: 7%
Jan–Mar 2026: 6.5%
Apr–Jun 2026: 6.7%
Jul–Sep 2026: 6.8%
RBI’s Plan to Increase Liquidity
To improve liquidity in the banking system, the RBI has announced major steps:
Conduct ₹1 trillion worth of Open Market Operation (OMO) purchases, injecting more money into the market.
Introduce a $5 billion tri-monthly USD/INR liquidity program in December.
These measures aim to ensure smooth financial operations and support economic stability.
