RBI Cuts Repo Rate to 5.25%; Governor Calls Current Phase a “Rare Goldilocks Period”

RBI Governor Sanjay Malhotra on 5 December said India is experiencing a “rare goldilocks period” marked by high growth and exceptionally low inflation.

• The Monetary Policy Committee (MPC) unanimously decided to reduce the policy repo rate by 25 basis points, bringing it down to 5.25%.
• The decision followed the MPC meeting held from December 3–5.

Strong Growth & Lower Inflation Enabled Rate Cut

• The MPC cited:
  • Strong domestic growth indicators, and
  • Sharp decline in inflation
    as the key reasons behind the policy easing.

Revised Economic Projections

GDP Growth Outlook

• RBI raised its GDP growth estimate for FY 2025–26 to 7.3%, an upward revision of 0.5 percentage points.

Inflation Outlook

• The CPI inflation projection for FY26 was revised downward to 2%, a reduction of 0.6 percentage points.

Inflation Hits Record Low

• Headline inflation fell to a record low of 0.25% in October 2025, largely due to a correction in food prices.
• Improved food supply conditions were attributed to:
  • Higher kharif output
  • Healthy rabi sowing
  • Adequate reservoir levels
  • Favourable soil moisture
• Core inflation remained contained, though precious metals alone added around 50 bps to headline inflation.

“Rare Goldilocks Period” for India

• Malhotra described the macroeconomic setting — with GDP growth at 8% in H1 FY26 and inflation at 2.2% — as a rare balance of high growth and low inflation.
• This favourable environment created the policy space for the MPC to introduce a rate cut and further support economic momentum.

Source: AIR