In its December policy meeting, the RBI delivered a “double bonanza” by cutting the policy repo rate by 25 bps to 5.25% and announcing a durable liquidity infusion of ~Rs 1.45 lakh crore through OMOs and a USD/INR Buy/Sell swap to support policy transmission. The rate cut decision was supported by a sharp easing in inflation, with the RBI lowering its FY26 CPI projection to 2.0% (from 2.6%). The revised inflation trajectory signals a dovish leaning, with projections at or below 4% through Q2 FY27.

The RBI also raised its FY26 real GDP growth forecast to 7.3% (from 6.8%), supported by a stronger-than-expected Q2 print and modest upward revisions to H2 projections. However, momentum is expected to moderate relative to H1 FY26. Looking ahead, the RBI is likely to focus on policy transmission and maintain a data-dependent, meeting-by-meeting approach. At this stage, we do not anticipate an additional rate cut in FY26 unless economic growth weakens materially relative to current expectations.