DC Edit | Will Rate Cut Boost Growth?

The Reserve Bank of India-led Monetary Policy Committee (MPC) has reduced the policy repo rate by 25 basis points to 5.25 per cent — the lowest since August 2022. At a time when global economic conditions remain clouded with uncertainty, protectionism and volatile commodity prices, the move marks an attempt to support India’s economic growth.

The rate cut comes on the back of exceptionally conducive macroeconomic conditions, which RBI governor Sanjay Malhotra most fittingly dubbed a “Goldilocks period”. Inflation in the second quarter of fiscal 2026 stood at 1.7 per cent, which was the lowest in over a decade. The economy posted a robust 8.2 per cent growth rate.

Lowering the repo rate is expected to result in a proportionate reduction in lending rates, making borrowing cheaper for Indian industry and consumers. Companies will benefit from cheaper working capital and investment loans, potentially encouraging capital expenditure to pick up. The consumer segment could see a faster uptick because of increased affordability of home loans, automobile debt and personal credit.

The MPC’s decision aligns closely with the government’s economic strategy of boosting domestic demand to counter slackening external trade and global headwinds. The cheaper credit coupled with lower GST and lower income tax could provide a much-needed stimulus to the Indian economy.

On the fall of the rupee’s exchange rate, Sanjay Malhotra’s announcement that the Central bank would allow the domestic currency to find its correct market-determined level is a sensible approach, especially in the wake of volatile global markets.

Despite being bullish about the future, the RBI highlighted AI-fuelled optimism and concerns over high valuations in global equity markets, whose aftereffects Indian equity markets have been witnessing in the last few months. As the world stands on the cusp of economic change, the government must ensure that the poor and middle classes are protected from the global headwinds.