‘Exceptional’: SBI welcomes RBI’s repo rate cut; report says central bank has played its role, now markets must remain disciplined – The Times of India

The Reserve Bank of India (RBI) cut the repo rate by a quarter of a percentage point to 5.25% on Friday, at a time when the economy is growing strongly and inflation remains exceptionally low. SBI in its latest report hailed the decision as “exceptional” and said the central bank had played its role in ensuring that monetary policy continues to support the country’s economic growth.The bank added that it is now up to markets to remain disciplined and avoid overreactions. The RBI’s Monetary Policy Committee unanimously voted in favor of reducing the repo rate while maintaining a neutral stance. The cut comes amid global uncertainty, even as India’s GDP grew by over 8.2% in the July-September 2025 quarter and inflation fell to just 0.25% in October. SBI Research noted that such a move is rare internationally. “Historical data from other countries show that in Britain, China and Indonesia there have been minimal cases where central banks have cut interest rates even when GDP growth has been high,” the report said. In previous cases, these cuts have typically been made at higher interest rate levels and during periods of higher inflation. The report cited Britain in the early 1970s, when Chancellor Anthony Barber made a “drive for growth” by cutting interest rates despite inflation at 11% and growth at 12.5%. Similarly, Indonesia cut interest rates successively between 1995 and 1997, with growth of 8.6% and inflation of 7.4% before the Asian financial crisis. “It is the only China to have cut spending in 2012 and 2015, when inflation averaged 1.8% and growth 7.4%,” the report said. India’s downward inflation trajectory is supported by lower food prices, strong kharif production, healthy rabi sowing, adequate reservoir levels and favorable soil moisture. As a result, the RBI has revised its inflation forecast for 2025-26 to 2.0%, up from 2.6% in October and 4.2% in February. “We forecast FY26 inflation at 1.8% and FY27 at 3.4%. With such an unprecedented level of downgrades and further prospects of downgrades looming large, the RBI has kept the door ajar on future interest rate decisions. However, for now, the repo rate of 5.25% will remain lower for longer,” SBI Research said. The central bank has also adjusted its GDP projections, with real growth for 2025-2026 now at 7.3%. For the first and second quarters of 2026-2027, these are expected to be 6.7% and 6.8% respectively. However, SBI Research warned that external demand could be affected by “ongoing tariff and trade policy uncertainties”, and that “prolonged geopolitical tensions and volatility in international financial markets, driven by investor risk sentiments, also pose downside risks to growth prospects.”” Despite these headwinds, the report expects GDP growth above 7% in the third and fourth quarters, bringing full-year growth to 7.6% for 2025-2026. Commenting on the policy decision, RBI Governor Sanjay Malhotra described India’s current economic environment as a “rare Goldilocks period”, with strong growth and low inflation. “The economy witnessed robust growth and benign inflation… We approach the new year with hope, strength and determination to further support the economy and accelerate progress,” he said.