Economists call RBI's 5.25% repo rate move an 'insurance rate cut' amid Goldilocks economy

New Delhi [India], December 5 (ANI): The Reserve Bank of India (RBI) on Friday lowered the repo rate by 25 basis points to 5.25 per cent, a move widely anticipated by markets and interpreted by analysts as a supportive step amid easing inflation and global uncertainties.
Calling the move an "insurance rate cut," Dharmakirti Joshi, Chief Economist at CRISIL Limited, said the reduction was expected given the inflation trajectory.

"It was as expected because the growth was high, but the inflation was lower than their 2 to 6 per cent range. And I think they also expect inflation to be lower in the third quarter of this year, and also the future inflation projections have also been reduced," Joshi added.
He further added that the cut should support borrowers as lending rates ease.
Joshi further added, "There are some signs of urban consumption strengthening a little bit. And the rate cut will mean that the eventual lending rates will also come down. They are gradually coming down and that does support consumption. The consumption is getting some support from the income tax rate cuts. It's also getting support from GST rate cut and it will also get some support from the cheaper borrowings."
On the investment outlook, Joshi remained cautiously optimistic. "Lower interest rate will also encourage more borrowings going ahead," he said, while noting that uncertainties still influence private investment decisions.
He agreed with the RBI's framing of the current macroeconomic moment, calling it a rare balance: "It's a rare Goldilocks because it doesn't usually happen that you get such a low inflation and such a strong growth rate."
Market reactions remained muted, with Sneha Poddar, VP Research, Motilal Oswal Financial Services, noting that the cut was already discounted. "25 basis points rate cut that the RBI has announced was largely factored in by the market, and that is the reason why we haven't seen any knee-jerk reaction by the Nifty," she said.
Calling it "almost the last leg of the rate cut," she added that "Auto and real estate will benefit the most because the loan rates will come down," while sectors like consumer discretionary, tourism, jewellery, FMCG, and NBFCs would also see gains as their cost of credit will come down.
Reacting to the rate cut, Atul Monga - CEO& Co-Founder, BASIC Home Loan said, "As far as potential homebuyers are concerned, improved loan affordability can expedite purchase decisions, this is especially relevant for those falling under the mid-income segment. I expect this move to revive the housing demand and improve consumer confidence."
Manoranjan Sharma, Chief Economist at Infomerics Ratings, highlighted that the rate cut aligned with expectations amid historically low inflation. "Most structures of the market had expected that... a 25 basis point cut was on," he said, pointing out that repo rates have fallen about 100 basis points in the last year.
He noted positive transmission trends, saying "there has been monetary transmission of about 63-65 basis points across all scheduled commercial banks." Sharma added that lending rates will fall further, benefiting industry, though "deposit interest rates... will also take a hit, and depositors could lose out." Despite global uncertainties, he argued, "India is on course for steady growth of well over 7.2 per cent."
With the central bank projecting GDP growth at 7.3 per cent for the current fiscal 2025-26 after today's policy announcement, economists broadly view the rate cut as a timely support measure amid global volatility, benign inflation, and signs of strengthening domestic demand. (ANI)