One of the highlights of RBI Governor Sanjay Malhotra’s address to the media on Friday to announce RBI’s rate decision was the term he used to describe India’s current economic phase. According to him, it is a “rare Goldilocks period”, which currently marks high economic growth and exceptionally low inflation.
The remarks came as the Reserve Bank announced its latest monetary policy decision, cutting the repo rate by 25 basis points to 5.25 per cent, after the three-day review meeting.
What is Goldilocks Period
The question then is what is referred to as a Goldilocks period. It is a phase in the economy that is marked by moderate, sustainable growth coupled with subdued inflation.
In economic term, it describes an ideal state where the economy is not too hot and too cold at the same time, meaning a rather steady economic growth that prevents downturn, but at the same time the growth rate isn’t that high that it could spike the inflation rate.
RBI Governor on state of Indian Economy : Why is it a ‘Goldilocks phase’
In this context, let’s understand the state of the Indian economy at the moment. The Reserve Bank of India Governor, Sanjay Malhotra, said since the October policy, the Indian economy has witnessed rapid disinflation, with inflation coming down to an unprecedentedly low level.
The Governor highlighted that for the first time since the adoption of flexible inflation targeting (FIT), average headline inflation for a quarter at 1.7 per cent in Q2:2025-26, breached the lower tolerance threshold (2 per cent) of the inflation target (4 per cent).
“It dipped further to a mere 0.3 per cent in October 2025. On the other hand, real GDP growth accelerated to 8.2 per cent in Q2, buoyed by strong spending during the festive season which was further facilitated by the rationalisation of the goods and services tax (GST) rates. Inflation at a benign 2.2 per cent and growth at 8.0 per cent in H1:2025-26 present a rare goldilocks period,” Governor Malhotra said.
Given the current economic condition, the RBI cut the repo rate by 25 bps while maintaining a neutral stance that signals the start of a lower for longer rate environment.
The policy decision was enabled by a Goldilocks backdrop.
FY26 GDP estimates: RBI outlook
The Q2 GDP print exceeded all estimates and came in at 8.2%. Based on this, the Governor said RBI has revised FY26 growth estimates to 7.3%.
RBI’s inflation estimates
The Reserve Bank has lowered the inflation estimates for FY26 to 2%. The central bank forecasted CPI inflation at 0.6% in Q3 and 2.9% in Q4.
What does Goldilocks phase indicate?
The overall economic activity strengthened with domestic demand remaining resilient. Most analysts believe that for the banking industry, this environment enhances the ability to expand credit, better transmission of interest rate cuts and support productive segments of the economy.