RBI’s MPC MEETING: Loans to get cheaper as RBI announces cut in repo rate by 25 bps

STC NEWS MONITORING DESK
DECEMBER 05 (STC): The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) in its meeting today surprisingly announced to cut the repo rate by 25 basis points to 5.25%, maintaining a neutral stance. Governor Sanjay Malhotra announced a 25-basis-point rate cut, highlighting record-low inflation.
The rate cut will make the loans cheapers, especially the loans linked to repo rate will get immediate relief. However, in other case, it will depend upon banks own timeline to pass on the benefit of the rate cut to its borrowers. Notably, transmission of rate cut to borrowers has remained an issue as most of the banks delay its implementation.
A majority of experts had expected the central bank to maintain the status quo on rates in December. However, some had anticipated a 25-basis point cut.
Key highlights of MPC meeting

Repo Rate Down at 5.25%
Governor Malhotra stated that the MPC unanimously decided to cut the repo rate by 25 basis points, citing inflation at a benign 2.2% and growth at 8% for the first half of this year, which presents a rare “Goldilocks” period.
The standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) stands adjusted to 5% and the marginal standing facility (MSF) rate and the Bank Rate to 5.50%.
“The MPC voted unanimously to reduce the policy repo rate by 25 basis points (bps) to 5.25 per cent with immediate effect,” Malhotra said.

Upward Revision of Growth Estimates
The RBI revised its FY26 GDP growth estimates to 7.3% from 6.8% previously, with Q3FY26 estimates increased to 7% from 6.4%, Q4FY26 estimates raised to 6.5% from 6.2%, and Q1FY27 estimates increased to 6.7% from 6.4%. The apex bank expects the Indian economy to grow at a rate of 6.8% in the second quarter of FY27.
“Looking ahead, domestic factors such as healthy agricultural prospects, continued impact of GST rationalisation, benign inflation, healthy balance sheets of corporates and financial institutions and congenial monetary and financial conditions should continue to support economic activity. Continuing reform initiatives would further facilitate growth,” said Governor Malhotra.

Downward Revision of Inflation Forecast
The apex bank cut FY26 CPI inflation forecast to 2% from 2.6% earlier, with Q3FY26 forecast cut to 0.6% from 1.8%, Q4FY26 forecast cut to 2.9% from 4%, and Q1FY27 estimates lowered to 3.9% from 4.5%. RBI expects retail inflation at 4% in Q2FY27.
“The MPC noted that headline inflation has eased significantly and is likely to be softer than the earlier projections, primarily on account of the exceptionally benign food prices,” said the RBI Governor.

RBI to conduct OMO, USD/INR buy-sell swap
The central bank announced that it will conduct open market operations (OMO) purchases of ₹1,00,000 crore in government securities and a three-year USD/INR buy-sell swap of $5 billion in December to inject durable liquidity into the system.

RBI to hold a two-month campaign to address grievances
The RBI will conduct a two-month campaign from January next year to address grievances pending for more than a month with the RBI Ombudsman, noting that in recent years, due to the receipt of a large number of grievances, the pending cases with the RBI Ombudsman have increased.
“We propose to hold a two-month campaign from 1st January next year with an aim to resolve all grievances pending for more than a month with the RBI Ombudsman. I elicit the support of all regulated entities in this endeavour,” said the RBI Governor.
(Straight Talk Communications I Inputs from Agencies)