New Delhi: The Reserve Bank of India reduced its key repo rate by 25 basis points on Friday, bringing it down to 5.25 percent. The move was widely expected as inflation continues to ease and economic growth remains strong.
The decision was taken unanimously by the Monetary Policy Committee, which kept its policy stance neutral. The central bank said the rate cut was aimed at supporting demand and ensuring financial stability as inflation trends remain soft.
RBI officials said inflation had moderated faster than expected, falling to around 0.25 percent in recent months. With prices stabilizing, the central bank revised its inflation forecast for the next financial year from 2.6 percent to 2.0 percent.
At the same time, growth numbers remain positive. The RBI updated its growth outlook and now expects the economy to expand by 7.3 percent in the coming financial year, up from earlier projections of 6.8 percent.
To support liquidity in the financial system, the RBI also announced measures including government bond purchases worth about one trillion rupees and a five billion dollar foreign exchange swap plan.
Financial markets reacted quickly to the announcement. Bond yields eased, with the benchmark ten year yield falling close to 6.46 percent. The rupee slipped slightly against the US dollar and was last seen trading near 89.87.
Stock markets saw a mild rise, led by banking, real estate and auto companies, which could benefit from lower borrowing costs.
Economists say the move may gradually lead to lower loan rates for households and businesses, especially home and auto loan borrowers. However, they also cautioned that banks may take time to fully pass on the rate cut.
The central bank flagged risks in the global environment, including rising trade tensions and weak international demand. It said these factors could affect exports and add uncertainty to the growth outlook.
Despite those concerns, the RBI noted that India remains in a relatively strong position with steady growth and low inflation, creating room for further adjustments if needed.
This is the fifth rate cut since February, bringing the total reduction for the year to 125 basis points.