The Reserve Bank of India (RBI) slashed the repo rate by a quarter point to 5.25% on Friday, at a time when the economy is growing strongly and inflation remains exceptionally low. SBI, in its latest report hailed the decision as “exceptional” and said that the central bank had played its role in ensuring that the monetary policy continues to support the country’s economic growth.The bank further added that it was now up to the markets to remain disciplined and avoid overreaction. The RBI’s Monetary Policy Committee voted unanimously to reduce the repo rate while maintaining a neutral stance. The cut comes amid global uncertainty, even as India’s GDP expanded by over 8.2% in the July–September 2025 quarter and inflation slipped to just 0.25% in October. SBI Research noted that such a move is rare internationally. “Historical data of other countries reveal that there have been minimal instances across the UK, China and Indonesia, where central banks have reduced their rates even when GDP growth was high,” the report said. In past cases, these cuts were typically made from higher interest rate levels and during periods of higher inflation. The report cited the UK in the early 1970s, when chancellor Anthony Barber enacted a “dash for growth” by cutting rates despite inflation at 11% and growth at 12.5%. Similarly, Indonesia cut rates successively from 1995 to 1997, with growth at 8.6% and inflation at 7.4% prior to the Asian financial crisis. “Its only China that had cut in 2012 and 2015 when inflation was averaging 1.8% and growth at 7.4%,” the report added. India’s downward inflation trajectory is supported by lower food prices, strong kharif production, healthy rabi sowing, adequate reservoir levels, and favorable soil moisture. As a result, the RBI has revised its inflation forecast for 2025–26 to 2.0 %, down from 2.6% in October and 4.2% in February. “We forecast inflation for FY26 at 1.8% and for FY27 at 3.4%”. With such unprecedented level of downward revisions and further prospects of downward revision looming large, the RBI has kept the door ajar for future rate decisions. However, for now, repo rate at 5.25% will be lower for longer,” SBI Research said. The central bank also adjusted its GDP projections, with real growth for 2025–26 now seen at 7.3%. The first and second quarters of 2026–27 are projected at 6.7% and 6.8% respectively. SBI Research cautioned, however, that external demand could be affected by “ongoing tariff and trade policy uncertainties,” and that “prolonged geopolitical tensions and volatility in international financial markets caused by risk-off sentiments of investors also pose downside risks to the growth outlook., Despite these headwinds, the report expects GDP growth above 7% in the third and fourth quarters, bringing full-year growth for 2025–26 to 7.6%. Commenting on the policy decision, RBI Governor Sanjay Malhotra described India’s current economic climate as a “rare goldilocks period,” with strong growth and low inflation. “The economy witnessed robust growth and benign inflation…We approach the new year with hope, vigor and determination to further support the economy and accelerate progress,” he said.
