SBI Applauds RBI’s Repo Rate Cut; Report Highlights Central Bank’s Role and Calls for Market Discipline

The Reserve Bank of India (RBI) has made a significant move by reducing the repo rate by 25 basis points to 5.25%. This decision comes at a time when the Indian economy is experiencing robust growth and remarkably low inflation rates. The State Bank of India (SBI) has praised this action as exceptional, emphasizing the central bank’s commitment to fostering economic growth while urging market participants to remain disciplined and avoid overreactions.

RBI’s Unanimous Decision

The RBI’s Monetary Policy Committee reached a unanimous decision to lower the repo rate while maintaining a neutral stance. This reduction is noteworthy given the global economic uncertainties, even as India’s GDP grew by over 8.2% in the July to September 2025 quarter. Inflation has also dropped to a mere 0.25% in October. SBI Research highlighted that such a rate cut is a rare occurrence internationally, with historical data showing minimal instances where central banks have lowered rates during periods of high GDP growth. The report pointed out that previous cuts in countries like the UK, China, and Indonesia typically occurred from higher interest rates and during times of elevated inflation.

Factors Influencing Inflation

India’s declining inflation trend is attributed to several factors, including lower food prices, strong kharif production, healthy rabi sowing, adequate reservoir levels, and favorable soil moisture conditions. As a result, the RBI has revised its inflation forecast for 2025-26 to 2.0%, down from 2.6% in October and 4.2% in February. SBI Research anticipates inflation rates of 1.8% for FY26 and 3.4% for FY27. The RBI’s decision to keep the repo rate at 5.25% for an extended period reflects its cautious approach, leaving the door open for future adjustments if necessary.

Revised GDP Projections

In addition to the rate cut, the RBI has adjusted its GDP projections, estimating real growth for 2025-26 at 7.3%. The first and second quarters of 2026-27 are projected to see growth rates of 6.7% and 6.8%, respectively. However, SBI Research has cautioned that external demand may be impacted by ongoing tariff and trade policy uncertainties. Prolonged geopolitical tensions and volatility in international financial markets could also pose risks to the growth outlook. Despite these challenges, the report predicts GDP growth to remain above 7% in the latter half of the fiscal year, leading to an overall growth rate of 7.6% for 2025-26.

Governor’s Remarks on Economic Climate

RBI Governor Sanjay Malhotra described the current economic environment as a “rare goldilocks period,” characterized by strong growth and low inflation. He expressed optimism about the economy’s trajectory, stating, “The economy witnessed robust growth and benign inflation.” As the new year approaches, Malhotra emphasized the RBI’s determination to support the economy and accelerate progress, reflecting a positive outlook for India’s financial landscape.

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