RBI’s fifth bi-monthly policy of the year delivered exactly the kind of surprise that can change the mood of an entire market. After two consecutive pauses, the Monetary Policy Committee cut the repo rate by 25 basis points to 5.25 percent from 5.5 percent, while firmly holding on to a ‘Neutral’ stance in a unanimous decision by all six members.
Why did the central bank feel confident enough to ease now? Because inflation has not just cooled, it has collapsed into a comfort zone rarely seen in recent years – Headline CPI has fallen to an all-time low in October, food prices have corrected against their usual seasonal pattern, core inflation excluding food and fuel is largely contained, and, once gold is stripped out, core inflation has dropped to 2.6 percent, decisively breaching the lower end of RBI’s tolerance band.
Against this benign backdrop, Governor Sanjay Malhotra described the current phase as a “rare goldilocks” period, where strong growth coexists with exceptionally low inflation, giving the MPC room to support the cycle without immediately risking an overshoot. At the same time, the corridor has been left intact with the standing deposit facility rate at 5 percent and the marginal standing facility and Bank Rate at 5.5 percent, signalling that the RBI wants to move policy in measured steps rather than launch an aggressive easing cycle.
If inflation is under control, what is RBI trying to achieve with such an elaborate liquidity play? The answer lies in the twin challenge of a record-weak rupee and the need to preserve financial stability while nurturing growth. Malhotra has announced that the RBI will infuse around Rs 1.45 lakh crore of liquidity into the banking system through a combination of open-market purchases of government bonds worth up to Rs 1 lakh crore and a dollar-rupee buy/sell swap of $5 billion, both scheduled in December.
These operations come at a time when foreign exchange reserves have eased to about $686 billion from $688.1 billion a week earlier as the central bank leaned against rupee depreciation, with the currency recently hitting a record low of 90.42 before recovering to around 89.93.
The messaging is clear: Even as RBI cuts rates and acknowledges disinflation, it is unwilling to leave the rupee or market liquidity entirely at the mercy of volatile global flows. By pre-committing to OMOs and FX swaps, the central bank is effectively telling bond and money markets that it will not allow an accidental tightening of financial conditions to choke off growth, especially when India’s macro mix looks as favourable as it does today.
How strong is that growth story that RBI is trying to protect? The numbers in this policy are unambiguously upbeat. Real GDP has clocked 8.2 percent growth in Q2 2025–26, the best in six quarters, driven by resilient domestic demand despite global trade and policy uncertainty, while real GVA has expanded 8.1 percent on the back of buoyant industry and services.
The first half of the year has benefited from income tax and GST rationalisation, softer crude prices, front-loaded government capex and easy financial conditions created by falling inflation, prompting the RBI to revise its full-year GDP forecast sharply higher to 7.3 percent from 6.8 percent earlier, with Q3 pegged at 7 percent (from 6.4 percent) and Q4 at 6.5 percent (from 6.2 percent).
On the inflation side, the central bank has marked down its FY26 CPI projection to 2 percent from 2.6 percent, sliced Q3 to 0.6 percent from 1.8 percent, and Q4 to 2.9 percent from 4 percent, while estimating Q1 of the next fiscal at 3.9 percent (versus 4.5 percent earlier) and projecting CPI at 4 percent in July–September FY27, essentially signalling a glide path that stays within or below target for an extended period.
That is the macro context in which experts like Anil Rego of Right Horizons PMS argue that by cutting the repo rate to 5.25 percent while maintaining a neutral stance and layering in liquidity support, the RBI has aligned monetary conditions with the disinflation trend but kept enough flexibility to respond if external risks flare up, thereby reducing tail risks for bond markets and building a constructive backdrop for duration strategies. Divam Sharma of Green Port, meanwhile, calls the move bold in the context of 2.2 percent inflation and 8 percent plus growth, predicting a further lift to urban and rural consumption and capex, but warning that excess liquidity, a weak currency and strong demand could push the economy towards overheating if not carefully managed – a reminder that this goldilocks phase will need constant calibration rather than complacency.
Where does the stock market fit into this macro jigsaw, and how did Nifty and Sensex actually react after the announcement? According to Reuters, Indian stock benchmarks recovered smartly from a muted start once the 25 bps cut and liquidity cues were out: the Nifty rose about 0.25 percent to 26,097, while the Sensex climbed roughly 0.23 percent to 85,455 by around 10:07 a.m. IST, with both indices swinging between small gains and losses just before the decision.
Fortune India’s Chitranjan Kumar notes that the Sensex rebounded by about 581 points from the day’s low to hit 85,659, while the Nifty jumped around 0.66 percent to touch 26,157, before settling with the Sensex still up more than 300 points and the Nifty over 100 points higher as rate-sensitive buying deepened.
Moneycontrol’s live market coverage adds another layer: it reports that the Sensex gained more than 500 points from its intraday low and that the Nifty moved decisively above 26,100 after the policy, with Nifty Financial Services up about 0.8 percent, Bank Nifty and PSU Bank indices up 0.5–0.8 percent and broad-based interest in autos and realty.
What does this tell investors? It suggests that while the headline percentage moves in indices may appear modest, the internals tell the real story – banks, NBFCs, real estate and autos, the classical rate sensitives, were quick to reprice the policy as growth friendly and liquidity supportive, even as some heavyweights in FMCG and other defensives capped the upside.
That is why names like Nifty Realty were among the top sectoral gainers, with Realty, Banking, Auto and Financial Services indices rising between roughly 0.4 and 0.9 percent, reflecting a clear shift in positioning towards cyclical and domestic demand plays.
So, what is the bottom line for someone trying to read this policy as a story rather than a set of disconnected numbers? Think of it as the first carefully measured step into an easing cycle that has been made possible by record-low inflation but is constrained by a fragile currency and an already strong growth engine.
The RBI has cut the price of money just enough to reward the disinflation it has engineered, revised growth higher to acknowledge the strength of domestic demand, and then overlaid this with a hefty liquidity injection via OMOs and FX swaps to reassure both bond traders and equity investors that it will not let tightening conditions or rupee volatility derail the upcycle.
Markets, for their part, have responded in textbook fashion: Nifty and Sensex have edged higher, banking and financial indices have outperformed, realty and auto have surged, and commentary from fund managers such as Rahul Singh of Tata Asset Management – who points out that the rate cut comes on top of improving earnings and reasonable Nifty valuations – suggests that the policy has nudged sentiment from cautious to cautiously optimistic rather than into a euphoric melt-up.
The real test will be whether inflation stays anchored near the RBI’s new projections and whether foreign flows stabilise enough for the rupee to stop dictating the pace of policy, but for now, Dalal Street has treated this 25 bps cut and the accompanying liquidity promise as the opening chapter of a more supportive monetary backdrop rather than a one-off gesture – a chapter that, if written carefully, could extend India’s current growth run well into FY27.
