RBI MPC Meeting Highlights: Repo rate cut by 25 basis points to 5.25%, EMIs to come down; RBI governor Sanjay Malhotra dismisses concerns on rupee, says comfortable on external sector

“Economic activity has remained resilient with growth of real gross domestic product (GDP) surprising on the upside at 7.8 per cent and gross value added (GVA) at 7.6 per cent for Q1: 2025-26. As suggested by high frequency indicators available so far, domestic economic activity continues to sustain momentum in Q2:2025-26. Real GDP growth for 2025-26 is now projected at 6.8 per cent, with Q2 at 7.0 per cent, Q3 at 6.4 per cent, and Q4 at 6.2 per cent. Real GDP growth for Q1:2026-27 is projected at 6.4 per cent. The risks are evenly balanced,” RBI governor Sanjay Malhotra had said in the last policy statement.

“We expect the RBI to announce a 25-basis-point rate cut, supported by benign headline inflation. Food prices are likely to remain in deflation, keeping overall inflation comfortably below target through the end of the fiscal year, aided further by the pass-through of GST rate cuts. Although India is projected to grow at 7% in FY26, this remains below the economy’s estimated potential.

While the deflation in food prices is expected to be temporary, core inflation—excluding the impact of gold—is running below the 4% target. This combination provides the MPC with room not only to cut rates by 25 bps in this policy but also to adopt a more accommodative liquidity stance to strengthen the transmission of policy easing.

However, pressures from a widening goods trade deficit and continued FPI outflows have weighed on the rupee, presenting a counterpoint to immediate monetary easing. Nonetheless, the RBI retains multiple tools beyond the policy rate to manage external balances and currency stability, even as it guides monetary conditions toward greater accommodation,” says Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group.

“INR depreciated by 0.8% in Nov’25, closing the month at record low around 89.46/$ despite weakening dollar as the delay in finalizing US – India trade deal weighed on the sentiments leading to lacklustre FPI & FII inflows. Talks about India’s possible inclusion in Bloomberg Global Aggregate index led to some inflows into FAR securities, but other categories, in particular equity segment were not been able to attract much interest from foreign investors during the outgoing month.

Also at the fundamental level, India’s trade deficit surged to a record high in Oct’25, as imports rose to an all-time high which raised some concerns over the country’s external position, especially given the tariff situation. The annualized volatility also increased to 4.9% in the second half of the outgoing month vs a mere 1.4% seen in first half. At the same time stronger dollar demand from importers along with reduced intervention from RBI kept the bias on the weaker side.

Outlook: Rupee to find resistance in the zone of 90.60 – 90.70 as RBI Interventions to be closely scrutinized in coming days.

As Rate cut by the US Fed has been fully priced in by the markets, the dollar is likely to remain range-bound barring any surprise in the approach of the Fed. On the domestic side due to higher concerns of rupee depreciation, RBI may be tempted to hold rates at the current meeting which may widen the rate differentials in near term. More importantly, markets are looking for cues on the progress in US-India trade deal which could only provide major relief to the rupee in medium to long term perspective. On the higher side a breach and successful close above 90.70 could lead the pair to test next levels at around 91.40 – 91.50 on weekly basis.” Says Naveen Mathur, Director - Commodities & Currencies, Anand Rathi Shares and Stock Brokers.

“We expect the Monetary Policy Committee to keep the repo rate unchanged, despite inflation showing signs of relief. For homebuyers, this means EMIs may likely rise in the near future, offering stability over the next year. But doesn’t necessarily mean relief, considering many borrowers who took floating-rate loans in the last 18-24 months are still coping with higher repayment commitments.

For lenders, the rate pause could reinforce a cautious ‘wait-and-watch’ period. They will continue prioritising strong, salaried borrowers as they expand into tier-2 and tier-3 markets. The next big catalyst will come from policy clarity and structural reforms.

A fundamental reform worth observing is the early conversation around GST2.0. A sharper, more efficient regime could ease the tax load on under-construction homes, streamline input tax credits and reduce costs for developers. If executed well, it could soften property prices and encourage competitive home loan rates, especially in the affordable housing segment. Doing so may create fresh tailwinds for lenders aiming to scale in this category.

These developments are likely to influence the Union Budget 2026, which is expected to focus on housing-led growth, urban infrastructure and credit expansion. Today’s stable monetary environment gives policymakers the room to craft a strong, multi-year housing push that improves demand, supports construction jobs and positions housing finance as a key driver of India’s economic growth story,” says Atul Monga, CEO & Co-Founder, BASIC Home Loan.

Sankar Chakraborti, MD and CEO of Acuité Ratings & Research, noted that market expectations are currently balanced as financial experts analyse two different economic indicators.

"On one hand, both retail and core inflation have eased to multi-month lows, creating a comfortable backdrop for a potential 25-basis-point rate cut, with many analysts arguing that the sustained disinflation trend offers the RBI room to support growth," he said.

Additionally, India's Q2 FY26 GDP growth demonstrated robust performance, exceeding 8 per cent, leading numerous specialists to suggest that the central bank might maintain the policy rate at 5.5 per cent to retain monetary flexibility and ensure steady capital flows.

"With these competing forces of cooling prices versus resilient growth, consensus estimates currently lean slightly towards a status quo, even though a rate cut remains very much within the realm of possibility," Chakraborti concluded.

The Monetary Policy Committee of the Reserve Bank commenced its three-day discussion regarding upcoming bi-monthly monetary policy on Wednesday. The discussions are occurring amidst several economic factors including decreasing inflation rates, GDP growth improvement, the rupee's value exceeding 90 against the dollar, and current international conflicts.

The Reserve Bank has implemented three separate reductions in repo rate, totalling 100 basis points, starting from February, as the Consumer Price Index showed declining trends.

Industry analysts indicate that despite strong growth indicators, the substantial decrease in retail inflation has provided additional opportunity to reduce the primary short-term lending rate.

The Reserve Bank Governor's statement last month also acknowledged possibilities for further reductions in policy interest rates.

Considering these circumstances, certain analysts suggest the RBI might maintain current interest rates, as economic growth continues to strengthen, supported by fiscal management, focused government investments, and policy improvements including GST rate adjustments.

“Both strong GDP growth and multi-year low inflation present opposing signals for interest rate decisions. Both these developments (of a continued strong GDP growth and multi-year low inflationary levels) are mutually opposing forces from an interest rate perspective. Central banks usually do not tend to cut interest rates during periods of strong economic activity, represented by GDP growth. At the same time, the central banks usually respond to a low inflationary environment by cutting interest rates,” says Mehul Pandya, MD and Group CEO of CareEdge Ratings.

Real GDP has been estimated to grow by 8.2% in Q2 of FY 2025-26 against the growth rate of 5.6% during Q2 of FY 2024-25.

➢Nominal GDP has witnessed a growth rate of 8.7% in Q2 of FY 2025-26.

➢The Secondary (8.1%) and Tertiary Sector (9.2%) has boosted the Real GDP growth rate in Q2 of FY 2025-26 to rise above 8.0%.

➢Manufacturing (9.1%) and Construction (7.2%) in the Secondary Sector, has registered above 7.0% growth rate at Constant Prices in this quarter.

➢Financial, Real Estate & Professional Services (10.2%) in the Tertiary Sector has sustained a substantial growth rate at Constant Prices in Q2 of FY 2025-26.

During the most recent monetary policy meeting on October 1, the Reserve Bank of India (RBI) retained the repo rate at 5.5 per cent.

The Monetary Policy Committee (MPC) convened on September 29 and 30, and October 1, to evaluate the economic situation and determine the interest rate direction, as announced by the governor. The committee reached a consensus to keep the policy repo rate steady.

Following comprehensive deliberations, all members of the committee agreed to sustain the rate at 5.5 per cent.

This decision resulted in the Standing Deposit Facility (SDF) rate remaining at 5.25 per cent, whilst the Marginal Standing Facility (MSF) rate and the Bank Rate stayed fixed at 5.75 per cent.

The Standing Deposit Facility (SDF) rate denotes the interest that the RBI offers to banks when they place their excess, unsecured funds with the central bank for overnight duration.