The Reserve Bank of India (RBI) cut the key policy rate (repo rate) by 25 basis points on Friday. RBI Governor Sanjay Malhotra announced that the apex lender's Monetary Policy Committee (MPC) unanimously voted to cut the repo rate to 5.25 per cent. The MPC, however, maintained a "neutral" policy stance.
Record low retail inflation gave the MPC more flexibility to support the economy, reasoned the RBI Governor, as he lifted the FY2026 real GDP growth outlook for India to 7.3 per cent from 6.8 per cent. Inflation outlook was slashed year-on-year to 2 per cent from the earlier 2.6 per cent.
Calling the combo of lower inflation and 8 per cent GDP growth in the first half of the fiscal year a "goldilocks" period, Malhotra noted how October saw rapid disinflation. Growth inflation balance on both headline and core inflation continued to provide policy space for growth, he added.
"This is not a reactive measure to a slowdown, but a confident and forward-looking deployment of monetary space to deliver a structural stimulus, ensuring the nation's growth engine becomes more inclusive," reasoned Samantak Das, Chief Economist and Head – Research and REIS, India, JLL.
The MPC noted that headline inflation had moderated and was now expected to be softer than earlier projected figures. Malhotra also stated that manufacturing activities continued to improve while services maintained steady growth.
The MPC now expects the current account deficit to remain "modest" in the current fiscal, and said that India's forex reserves at $686 billion were sufficient to cover 11 months of imports.
"The Reserve Bank of India's decision to reduce the repo rate to 5.25 per cent is a timely move that will deliver significant benefits to the housing and real estate sector," said Mahendra Nagaraj, Vice President of M5 Mahendra Group.
"The rate cut would also strengthen market confidence and also act as a strong signal of policy support for the real estate sector and the broader economy. However, for the intended benefits to materialise, the transmission of the reduced rates must also be faster, ultimately benefiting the real estate sector and contributing positively to overall economic expansion," pitched in Ramani Sastri, Chairman and MD of Sterling Developers.