RBI Announces Rate Cut and $16 Billion Liquidity Boost

The Reserve Bank of India (RBI), under Governor Sanjay Malhotra, announced a 25 basis point repo rate cut to 5.25% and a unanimous "neutral" stance, signaling scope for further easing. This marks the first rate cut in the cycle, driven by CPI inflation hitting a multi-year low of 2% (from 2.6%) due to falling food prices, with core inflation remaining contained. To strengthen policy transmission, the RBI unveiled a $16 billion liquidity package: ₹1 trillion ($11.14 billion) in Open Market Operations (OMO) to buy government bonds. $5 billion in forex buy-sell swaps. Economists like Gaura Sen Gupta (IDFC First Bank) and Indranil Pan (Yes Bank) termed it a “dovish cut”, expecting further liquidity support (up to ₹2 trillion in Q4 FY26). The move aims to improve credit flow, especially to MSMEs, retail, and rural sectors. The RBI raised FY26 GDP growth forecast to 7.3% (from 6.8%), reflecting resilient domestic demand. Crisil projected 7% growth for FY26 and 6.7% for FY27, citing risks from US tariffs and lower capex. On the rupee — which touched 90 against the dollar — the RBI reiterated it does not target any level, allowing market forces to determine exchange rates, backed by strong forex reserves and a manageable current account deficit.