Mumbai, Dec 5 (PTI) The Reserve Bank of India (RBI) on Friday cut key benchmark interest rate for the first time in six months and took steps to boost liquidity to support a "goldilocks" economy in the face of high US tariffs.

The six-member monetary policy committee, led by RBI Governor Sanjay Malhotra, voted unanimously to lower the repurchase or repo rate by 25 basis points to 5.25 per cent and retained a neutral stance, which give room for further rate cuts.

In doing so, RBI seems to have shrugged off concerns over fall in the rupee, which breached 90 to a dollar this week. The currency is down almost 5 per cent against the dollar this year, the worst performer in Asia.

This is the fourth rate cut by the central bank since February 2025. It held rates in August and October bimonthly monetary policy meetings.

Based on the recommendation of the MPC, the RBI reduced repo rate by 25 basis points each in February and April, and 50 basis points in June amidst easing retail inflation.

"Inflation at a benign 2.2 per cent and growth at 8.0 per cent in H1:2025-26 (April-September of 2025-26 fiscal year) present a rare goldilocks period," Malhotra said announcing the monetary policy decisions.

The RBI lowered its inflation forecast for the fiscal year through March to 2 per cent from 2.6 per cent, while raising its GDP growth projection to 7.3 per cent, from the previous estimate of 6.8 per cent.

While economic growth has remained strong, India's economy has since October experienced rapid disinflation leading to a breach of the central bank's lower threshold of tolerance, he said.

"The growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum," he said. "Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience and is poised to register high growth. The headroom provided by the inflation outlook has allowed us to remain growth supportive." He went on to add that RBI will continue to meet the productive requirements of the economy in a proactive manner while ensuring macroeconomic stability.

Indian exports have plunged after US President Donald Trump slapped a 50 per cent tariff on goods from the country.

RBI will conduct open market operations of Rs 1 lakh crore to buy bonds this month, and another USD 5 billion in forex swaps to add liquidity to the banking system and speed up transmission of lower rates.

Commenting on the RBI decisions, Radhika Rao, Executive Director and Senior Economist at DBS Bank, said the central bank delivered on most fronts on Friday, lowering rates as per expectations and taking pro-liquidity steps, as well as measures to prevent a re-hardening in borrowing costs.

"The policy decision was likely dictated by a higher weightage given to below-target inflation, which had provided a sizeable real rate buffer. Backing the move, inflation forecasts were lowered, while growth numbers were marked-to-market given the strong 1HFY26 momentum," she said.

Anitha Rangan, Chief Economist, RBL Bank, said while the repo cut does put pressure on the currency front, forex swap suggests that RBI is cognizant of currency pressures. PTI DP NKD ANZ ANU ANU

RBI cuts repo rate to 5.25% and announces bond purchases and forex swaps to boost liquidity and support growth. The Reserve Bank of India cut the repo rate by 25 basis points to 5.25% and retained a neutral stance, citing benign inflation and stronger growth that provide scope for further easing. To support transmission and address currency pressures, the RBI announced open market purchases of bonds worth Rs 1 lakh crore and USD 5 billion in forex swaps to add liquidity to the banking system while reaffirming support for productive credit demand and macroeconomic stability.