Tuesday, 09 Dec, 2025
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The real story isn’t the rate cut or the growth upgrade but what they signal: a phase of macro stability. Prices are steady, growth is firm, the external position is comfortable, and policymakers have room to manoeuvre
India entered a rare phase this week when almost every major economic signal pointed in the same encouraging direction. The Reserve Bank of India (RBI) cut interest rates again, inflation continued to stay unusually low, and global rating agencies raised their growth forecasts for the country. This alignment does not happen often. Usually, India is battling one problem or another—high prices, weak investment, global uncertainty. For now, at least, the numbers are all moving the right way.
Rate cut signal
The RBI reduced the repo rate by 25 basis points to 5.25 per cent, the lowest in more than three years. This is the second cut of the year, bringing the total reduction to 125 basis points in 2025. The central bank could act with confidence because inflation has cooled sharply. Prices have been tamed by a season of benign food costs and by underlying inflation that is softer than headline numbers suggest.
The apex bank now expects inflation for the full year to be just 2 per cent, lower than what it estimated earlier. That gives it space to support growth without worrying that prices will flare up again.
Growth upgraded
What stands out is that the RBI did not cut interest rates because the economy was in trouble. Quite the opposite. India grew 8.2 per cent year-on-year in July-September—better than anyone expected. More significantly, the combination—lower inflation and higher growth—makes for an unusual moment of comfort in policymaking. It also helps explain why the central bank sounded relatively optimistic, even while insisting that future rate cuts will depend on data.
Macro Stability
To ensure that the rate cut actually reaches borrowers, the RBI has announced extra liquidity support: Rs 1 lakh crore of bond purchases and a $5 billion buy-sell swap. These steps ensure that banks have enough cash to cut loan rates and support borrowers. Home and car loan rates linked to the repo rate will fall almost immediately.
The challenge, however, is on the deposit side. Banks have already lowered deposit rates, and credit demand is rising. With the credit-deposit ratio now above 80 per cent, banks may hesitate to cut deposit rates any further. That means some pressure will remain in the system even though interest rates are falling.
Global tailwinds
What makes this moment notable is that global agencies are echoing the RBI’s optimism. In quick succession, the IMF, World Bank, Fitch, S&P, Crisil, and SBI Research have all raised their growth forecasts for India. Fitch now expects 7.4 per cent this year. SBI Research goes further, predicting 7.6 per cent growth. The IMF and World Bank have also spoken of India’s strong domestic momentum, even as the US imposes steep tariffs on Indian goods.
This cluster of upgrades is unusual. Global agencies are not always generous toward emerging economies. Yet here they are, broadly agreeing that India will remain the fastest-growing major economy.
Domestic cushion
RBI Governor Sanjay Malhotra described the current mix of low inflation and strong growth as a “Goldilocks period”—neither too hot nor too cold. The central bank believes this comfortable phase will last at least six to nine months, though it does expect some moderation in growth. The external environment remains tricky. US tariffs will bite exports. Banks still face funding constraints. And global uncertainty has not disappeared.
Even so, India’s economic footing is stronger today than it has been in several years. Inflation is under control. Consumption is steady. Manufacturing has picked up. And the world’s big financial watchers are, for a change, upgrading their numbers instead of trimming them.
What it means
The most important development may not be the rate cut or the growth upgrade but the broader trend they both point to: India has entered a period of macroeconomic stability. Prices are calm. Growth is healthy. The external outlook is positive. And policymakers have room to act.
This phase will not last forever—economic cycles rarely do. But at the moment, India is enjoying a welcome period where its economic signals are not flashing warnings. Instead, they are pointing to a steady, balanced expansion. For an economy as large and complex as India’s, that is no small achievement.
