New Delhi: India is entering what the Reserve Bank of India is calling a “rare Goldilocks moment”, as the central bank cut its key policy rate on Friday and signalled a clear tilt toward supporting growth.
The Monetary Policy Committee (MPC) reduced the repo rate by 25 basis points to 5.25%, its second cut in six months, after record-low inflation and strong economic expansion created room for monetary easing.
With consumer prices rising just 2.2% and GDP surging 8% in the first half of the year, policymakers unanimously backed the rate cut, arguing that domestic conditions were exceptionally favourable.
RBI Governor Sanjay Malhotra emphasized that the central bank wants the cheaper money to “transmit to the real economy first”, urging banks to ensure that lower borrowing costs reach households and businesses.
A Goldilocks period is a “perfect” market scenario -- interest rates are low, economic growth remains stable and inflation appears moderate. Like in the story ‘Goldilocks and the Three Bears’, everything is neither too hot nor too cold, but just right.
Govt Bond Purchase
The RBI also injected liquidity by purchasing ₹1 lakh crore of government bonds, creating additional lending capacity across the banking system.
The central bank’s policy shift comes even as India faces a complex external environment marked by stalled US trade discussions, aggressive American tariffs of up to 50% on Indian goods, and geopolitical tensions that could affect investment flows and exports.
The RBI sharply upgraded its growth forecast for the financial year to 7.3%, up from 6.8%, citing robust domestic demand, strong investment momentum, and muted inflationary pressures. October inflation, at just 0.25%, was widely described as an all-time low.
Private-sector economists echoed this optimism: many forecast growth at or above 7% this year, with only a modest moderation expected next year.
On inflation, the RBI revised its projections downward and now expects retail inflation to average 2% in FY2025-26, before rising to 3.9% in the first quarter of FY2026-27. Malhotra said the “growth-inflation balance continues to provide policy space”, raising the likelihood of more rate cuts if prices remain subdued. Market analysts agreed, with some anticipating another 25-basis-point reduction later in the cycle.
Corridor Rates
The central bank also adjusted key corridor rates, lowering the standing deposit facility to 5% and the marginal standing facility to 5.5%, further signalling an accommodative stance. Despite the supportive policy environment, the rupee weakened after the announcement, sliding to 90.07 per dollar, close to its record low.
Malhotra said the RBI would allow the currency to “find its correct position, correct level”, a shift from the active intervention seen in previous months. The rupee has already fallen 5.5% this year, making it Asia’s worst-performing currency, and economists believe it may trade between 92 and 93 next year.
For borrowers, the policy change promises immediate relief: home, car and personal loan EMIs are expected to fall as banks revise lending rates, and companies should benefit from cheaper credit for expansion. For savers, returns may soften, but low inflation should preserve real income.
As Malhotra noted in his year-end remarks, 2025 delivered “robust growth and benign inflation” despite global uncertainties, and the RBI enters 2026 with “new hope, vigour, and determination”.