New Delhi, Dec 5 (IANS) The Reserve Bank of India’s decision to cut the repo rate is a move that uses the monetary space created by low inflation to stimulate consumption and strengthen the growth cycle, bankers said on Friday.

Sakshi Gupta, principal economist at HDFC Bank, said the cut was in line with expectations as GDP growth had inched up above 8 per cent in Q2 FY26, the risk from external headwinds on exports continuing to linger on. She said that the sustainability of festive‑season consumption remains uncertain and hence rate cut rightly provides a further counter-cyclical push to consumption and growth.

HDFC Bank analyst forecasted a GDP growth of 7.3 per cent in FY26 and 6.5 per cent in FY27, and inflation at 2 per cent in FY26 and 4 per cent in FY27, adding that inflation is set to stay below 4 per cent until mid‑year, leaving room for another cut if growth falters in coming quarters.

However, if the recent economic momentum continues combined with a favourable trade deal announcement, this could be the end of the rate cut cycle, she added.

Rajiv Anand, Managing Director & CEO, IndusInd shared the same inflation forecasts and said the repo rate cut reiterated the primacy of a rules-based monetary framework.

"A durable liquidity infusion of nearly Rs 1.5 trillion through bond purchases and FX swaps will support policy transmission via market rates, particularly in the sovereign bond market," he added.

"A Rate cut alongside long dated Swaps and OMOs, not only keeps the liquidity promise intact, but also will keep the Currency in relative balance. The market appears to have reacted positively on all counts," said Lakshmanan V, Group President & Head - Treasury (Treasurer), Federal Bank.

RBI MPC members unanimously decided to reduce the repo rate by 25 basis points to 5.25 per cent from 5.5 per cent earlier to spur growth in the economy.

The central bank also announced a dollar-rupee swap arrangement of $5 billion.

IANS

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