RBI Governor announced a 25 basis points repo rate cut to 5.25% in April 2026, marking the first monetary easing after an 18-month pause. The decision followed inflation dropping to 4.1% in March 2026 and GDP growth slowing to 5.8% in Q4 FY26. Monetary Policy Committee voted 4-2 in favor of the cut, citing subdued demand conditions and global economic uncertainties. Banking stocks rallied 3% post-announcement, while bond yields declined sharply across tenors.

The repo rate cut represents RBI's shift from inflation-targeting to growth-supportive monetary policy. After maintaining rates at 5.50% since February 2025 amid persistent inflation concerns, the central bank responded to cooling price pressures and weakening economic momentum. The 25 bps reduction aims to lower borrowing costs for banks, enabling cheaper loans for consumers and businesses. This transmission mechanism typically takes 3-6 months to fully impact credit growth and investment activity. The decision reflects RBI's dual mandate - price stability and growth support. With inflation within the 2-6% target range and core inflation at multi-year lows, the MPC prioritized reviving credit demand. Global factors like Fed rate cuts and crude oil price stability provided additional policy space. The cut is expected to boost sectors like real estate, automobiles, and infrastructure through improved credit availability. However, effectiveness depends on banks' willingness to transmit rate cuts to borrowers and underlying demand recovery in the economy.