The Reserve Bank of India's Monetary Policy Committee on Friday decided to reduce the repo rate by 25 basis points to 5.25% after inflation eased to a record low.

According to Governor Sanjay Malhotra, the central bank also maintained its 'neutral' stance. This allows the RBI to move its policy decisions in either direction.

A Mint poll of 13 economists showed that nine expected a pause in the repo rate, the rate at which the central bank lends money to commercial banks. Four economists had anticipated a 25-basis-point cut. (One basis point equals 0.01%.)

The surprise strong real gross domestic product (GDP) print in the September quarter had earlier raised doubts over the possibility of a rate cut in December.

Malhotra said growth, while remaining resilient, is expected to soften somewhat. The six-member MPC raised its GDP forecast to 7.3% from 6.8% previously.

"…the growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum," he said.

The MPC pointed out that headline inflation, which has eased significantly, is likely to be softer than the earlier projections, primarily due to exceptionally benign food prices.

Retail inflation dropped to an all-time low of 0.25% in October, led by deflation in food, passthrough of GST cuts and supportive base effects, the government said on 12 November. For FY26, consumer price inflation is tracking at 2%, lower than the RBI's estimate of 2.6% and well within its target band of 2-6%.

After rate cuts totalling 100 bps in the first half of this year, the RBI had kept rates steady since August. RBI governor Sanjay Malhotra said on 24 November that recent economic data suggested there was still scope to cut interest rates.