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 6 key takeaways from the RBI’s key meeting
1. Repo rates cut by 25 bps
The Reserve Bank of India has cut the repo rate by 25 basis points 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 MOC has maintained the stance as Neutral.
2. RBI to inject Rs 1 trillion via OMOs, swaps
The RBI has decided to conduct open market operations of 1 trillion rupees ($11.14 billion) to buy bonds this month, and 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%, cuts inflation outlook to 2%
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. 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.
4. FX reserves, signal RBI supporting Rupee
India’s foreign exchange reserves stood at $686 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.
The decline in reserves over recent weeks reflects the central bank’s efforts to support the rupee.
5. 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.
6. 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. The next MPC meeting is scheduled for February 4 to 6, 2026.