NEW DELHI: The Reserve Bank of India (RBI) reduced its key policy repo rate by 25 basis points, bringing it down to 5.25% from 5.50%. 

The decision — reached unanimously by the Monetary Policy Committee (MPC) after a three-day review — comes as India balances improving growth momentum with sharply easing inflation. 

Alongside the rate cut, RBI kept its policy stance on “neutral,” and adjusted other key rates: the Standing Deposit Facility (SDF) rate is now 5.00%, while the Marginal Standing Facility (MSF) and the Bank Rate stand at 5.50%. 

Why RBI acted

Soft inflation: Inflation — including food prices — has decelerated sharply, giving RBI policy space. 

Strong economic growth: With growth momentum staying robust, the RBI judged there was room to ease borrowing costs without endangering macroeconomic stability. 

Support for borrowing & investment: Lower repo rate and additional liquidity aims to encourage credit flow, borrowing and investment — a potential boon for home-buyers, businesses, and consumers alike. 

To ensure smooth transmission of the rate cut and ease financial conditions further, RBI announced open-market operations (OMO) — purchasing government securities worth Rs. 1 lakh crore — and plans a three-year USD/INR buy/sell swap of $5 billion later this month. 

Analysts expect this to lower bond yields, ease credit costs, and could stimulate credit growth. Some see room for further rate cuts if inflation remains benign and growth strong. 

Home-loan and other variable-rate borrowers may see interest costs come down over coming quarters, improving affordability.

Businesses reliant on credit could find expansion funding cheaper, potentially boosting investment and consumption.

Lower rates may put pressure on savings and fixed-income returns (e.g., bank deposits), prompting investors to re-evaluate their options.

For the broader economy — cheaper credit, improved demand — this could support growth in sectors like housing, consumer goods, and industrial investment.

Overall, today’s move signals that RBI is leaning toward growth support, taking advantage of favourable inflation conditions. It lays the groundwork for easier borrowing and investment — though how quickly banks pass on rate cuts to consumers will be crucial in determining the real-world impact.