MARKET STRUCTURE · REGULATORY · COMPETITIVE · INDIA
RBI cuts repo rate to 5.25% and announces ₹1 lakh crore bond purchases
Change
The Reserve Bank of India's Monetary Policy Committee unanimously cut the policy repo rate by 25 basis points to 5.25%, raised its FY26 GDP growth forecast to 7.3%, announced open market purchases of government bonds worth ₹1 lakh crore, and arranged a USD 5 billion buy-sell swap.
Why it matters
The MPC reduced the policy repo rate by 25 basis points to 5.25% after a three-day review while retaining a neutral stance. The central bank revised its FY26 GDP growth forecast to 7.3% from 6.8%. Open market purchases of government bonds worth ₹1 lakh crore were announced to bolster banking-system liquidity. A USD 5 billion buy-sell swap was arranged to provide FX liquidity and address domestic liquidity tightness.
Implications
- · Lowers commercial banks' policy funding costs, affecting deposit and lending rate setting.
- · Injects liquidity into the banking system through ₹1 lakh crore of government bond purchases and a USD 5 billion FX swap.
- · Applies downward pressure on long-term government bond yields and contributes to yield-curve flattening.
Who is affected
- · Commercial banks
- · Retail and corporate borrowers
- · Government bond traders and portfolio managers
- · Institutional investors (insurance companies, asset managers)
Source
Topics
Business & Markets Economy Finance & Banking Banking Regulation Capital Markets Monetary Policy