RBI’s Monetary Policy Statement, 2025-26 – December 3 to 5, 2025

The Monetary Policy Committee (MPC) held its 58th meeting from December 3 to 5, 2025, under the chairmanship of Shri Sanjay Malhotra, Governor, Reserve Bank of India. The MPC members Dr. Nagesh Kumar, Shri Saugata Bhattacharya, Prof. Ram Singh, Dr. Poonam Gupta and Shri Indranil Bhattacharyya attended the meeting.

After a detailed assessment of the evolving macroeconomic and financial developments and the outlook, the MPC voted unanimously to reduce the policy repo rate under the liquidity adjustment facility (LAF) to 5.25 per cent. Consequently, the standing deposit facility (SDF) rate shall stand adjusted to 5.00 per cent and the marginal standing facility (MSF) rate and the Bank Rate to 5.50 per cent. The MPC also decided to continue with the neutral stance.

The Reserve Bank of India has gone big on liquidity boost in its December Monetary Policy Committee (MPC) meeting. The RBI MPC unanimously decided to cut rates by 25 basis points to 5.25% and maintains policy stance at ‘neutral’. This MPC was keenly awaited, especially given the fact that the rupee hit a lifetime low during the 3-day meeting and the Reserve Bank came up with its plan to inject liquidity to the banks.

Here are Highlights & key takeaways from the RBI’s meeting :

1. Repo rates cut by 25 bps
   The Reserve Bank of India has cut the repo rate by 25 basis points to 5.25% and left the door open for further easing as it took steps to boost banking-sector liquidity by up to $16 billion to support a “goldilocks” economy. The RBI MPC has maintained the stance as Neutral.
2. RBI to inject Rs 1 trillion via OMOs, swaps
   System liquidity, as measured by the net position under the LAF, stood at an average surplus of ₹1.5 lakh crore for the period since the MPC last met in October 2025. The RBI has decided to conduct open market operation (OMO) purchases of government securities amounting to ₹1,00,000 crore to buy bonds this month, and 3-year USD/INR Buy Sell swaps of another $5 billion in forex swaps to add liquidity to the banking system and speed up transmission of lower rates.
3. RBI lifts GDP forecast to 7.3%
   Real GDP growth for 2025-26 is projected at 7.3 per cent, with Q3 at 7.0 per cent; and Q4 at 6.5 per cent. Real GDP growth for Q1:2026-27 is projected at 6.7 per cent and Q2 at 6.8 per cent. The central bank raised its GDP forecast for the current year to 7.3%, up from its previous estimate of 6.8%. Important to note this revision comes after India’s Q2 GDP growth came at 8.2%, a six-quarter high.
4. RBI cuts inflation outlook to 2%
   Headline CPI inflation declined to an all-time low in October 2025. The inflation projection was lowered to 2% from 2.6% in October. The RBI targets inflation at 4%, with a tolerance band of 2% on either side. The inflation projections came after October inflation hit an all-time low. Overall, inflation is likely to be softer than what was projected in October, mainly on account of the fall in food prices. Considering all these factors, CPI inflation for 2025-26 is now projected at 2.0 per cent with Q3 at 0.6 per cent; and Q4 at 2.9 per cent. CPI inflation for Q1:2026-27 and Q2 are projected at 3.9 per cent and 4.0 per cent, respectively. The underlying inflation pressures are even lower as the impact of increase in price of precious metals is about 50 bps. The risks are evenly balanced.
   
5. FX reserves, signal RBI supporting Rupee
   India’s foreign exchange reserves stood at $686.2 billion as of November 28, down slightly from $688.1 billion a week earlier, RBI Governor Sanjay Malhotra said while announcing MPC decisions on Friday. RBI is confident of meeting our external financing requirements comfortably.
   The decline in reserves over recent weeks reflects the central bank’s efforts to support the rupee.
6. External sector stable as CAD narrows to 1.3% in Q2: RBI
   The RBI said the external sector remains stable, with the current account deficit expected to stay modest, easing from 2.2% of GDP in Q2 last year to 1.3% in Q2 this year — a decline of about 0.9 percentage points. RBI noted that services exports remain robust, though merchandise exports continue to face headwinds from weak global demand.
   “On the external front, services exports are likely to remain strong, while merchandise exports face some headwinds. External uncertainties continue to pose downside risks to the outlook, while speedy conclusion of ongoing trade and investment negotiations presents upside potential,” the RBI noted.
7. RBI MPC cites inflation drop as room to support growth
   The MPC said the sharp fall in inflation created “policy space to support growth”. It added that both headline and core inflation are expected to remain close to the 4% target in the first half of 2026-27. While growth remains resilient, the committee expects some moderation ahead, reinforcing the need to support economic momentum.
   “The growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum,” it said.
   With the latest rate cut in December, the RBI has reduced the repo rate by a total of 125 basis points since February 2025. It kept rates unchanged in August and October.
8. The minutes of the MPC’s meeting will be published on December 19, 2025.
9. The next MPC meeting is scheduled for February 4 to 6, 2026.

Rationale for Monetary Policy Decisions
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. Reflecting these favourable conditions, the projections for average headline inflation in 2025-26 and Q1:2026-27 have been further revised downwards. Core inflation, which had been rising steadily since Q1:2024-25, eased at the margin in Q2:2025-26 and is expected to remain anchored in the period ahead. Both headline and core inflation are expected to be around the 4 per cent target during the first half of 2026-27. The underlying inflation pressures are even lower as the impact of increase in price of precious metals is about 50 bps. Growth, while remaining resilient, is expected to soften somewhat.

Thus, the growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum. Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 bps to 5.25 per cent. The MPC also decided to continue with the neutral stance. However, Prof. Ram Singh was of the view that the stance be changed from neutral to accommodative.

Source: rbi.org.in, Financial Express, Economic Times, Money Control