Repo Rate RBI: Major news for common people. Last year, in 2025, the policy rate was reduced four times to provide relief of 1.25% to the general public on EMIs. Relief may be provided this time as well. This year’s relief will not be as significant as in 2025. According to a report by IIFL Capital, after the massive 125 basis point cut in 2025, the Reserve Bank of India has room to further reduce the policy rate by 50 basis points in 2026.
The report highlights that the gap between the repo rate and core CPI inflation remains high, leaving room for further monetary easing. The gap between the repo rate and core CPI is currently 2.8 percentage points, compared to an average of 1.1 percentage points over the past seven years, suggesting the potential for further rate cuts in India.
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The report states that with the gap between the repo rate and core inflation well above its historical average and inflation remaining low, there is room for a further 50 basis points reduction. The report also states that monetary easing, combined with continued liberalization, will accelerate growth, and banks are expected to perform better as credit conditions improve. The Reserve Bank of India announced a 25 basis point reduction in the policy repo rate in December, bringing it down to 5.25 percent. In 2025, the RBI announced a total reduction of 125 basis points.
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India’s GDP growth is expected to accelerate in 2026 due to the cumulative impact of economic reforms and the RBI’s interest rate cuts to date. The report notes that there is room for further easing, as the repo rate minus core inflation remains well above its historical average. While global monetary optimism is expected to remain limited, domestic factors will play a key role in boosting growth.
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According to the report, free trade agreements, especially with the European Union, and a potential uptick in the Indian rupee, coupled with export-oriented FDI, are expected to contribute positively. Capex is projected to revive in the second half of fiscal year 2027, further boosting economic activity.