RBI Cuts Rates, Boosts Growth: Rupee Dips as Inflation Hits Record Lows

Maintaining a neutral policy stance, the Reserve Bank of India (RBI) lowered its main repo rate by 25 basis points to 5.25% in December 2025, fourth reduction this year. Reflecting RBI's confidence in the local economy as inflation softens and development stays robust, this move is bolstered by further liquidity measures, including ₹1 lakh crore in OMO bond purchases and a $5 billion USD-INR swap.

RBI increased its FY26 GDP growth projection from 6.8% to 7.3%, citing strong urban and rural demand, consistent investment, and growing private credit. With policymakers minimizing worldwide dangers like US levies and stressing India's tenacity on the back of strong consumption and high capacity utilization, the first half of FY27 has a favorable 6.8% expansion outlook.

Decreasing food prices and under control core inflation have led to a sharp decrease in CPI inflation projections to 2.0% for FY26, therefore providing more room for relaxation. Headline inflation fell to an all-time low in October 2025, therefore strengthening the belief that it will keep moderating into FY27. But after the news, the rupee dropped below the 90 mark to the USD as lower interest rates decreased foreign investor appeal—a move the RBI described as acceptable, reaffirming its comfort with some exchange rate volatility given worldwide trends