New policy targets liquidity boost for growth 

December 8, 2025

It was being said that India’s treasury and capital reserves lack liquidity for sustainable development. It was also being argued that with inflation under control, with inflation forecasts falling from 2.8 per cent to 2 per cent, and GDP growth rising from 6.8 per cent to 7.3 per cent, monetary policy could now accelerate the country’s growth rate and achieve its goal of becoming a developed country.
To counter this, the Reserve Bank not only lowered the repo rate but also injected an additional ₹1.43 lakh crore into the entire banking system through open market operations. Meanwhile, the repo rate, which had already been cut by a total of 1.25 per cent this year, has been further reduced by 0.25 per cent. This is the first reduction since June 2025. However, since February, the Reserve Bank of India has cut the repo rate four times. This brings the total reduction in interest rates to 1.25%. Before the rate cuts began, the repo rate was 6.5%. This reduction is another step in this direction to signal inflation control. This will make home loans, mortgage loans, and other loans cheaper. The real estate sector will also benefit from this.

However, the Reserve Bank is confident that inflation will remain low, so the repo rate may be reduced by another 0.25% to 5% in the next bi-monthly monetary policy statement in February 2026. Meanwhile, GST rates have already been cut, which was also an effort to maintain demand. Now, the repo rate and the announcement of increasing liquidity in the open market are intended to further stimulate demand. Source banks are now being pressured to increase demand by changing their rates. It should be noted that this year, only half the benefit of the 1.25 per cent cut in the repo rate was realised because banks reduced the interest rate by only 0.58 per cent, saying that their deposits are still low. It is an interesting fact that our GDP has grown by 9.2 per cent, but the government has still reduced the rates to increase the economy. This does not usually happen, but to improve the condition of the Indian economy and strengthen growth and investment, the Reserve Bank has adopted this approach in its new monetary policy.