The Signal
On Friday, December 5th, the Reserve Bank of India did something it hasn’t done in nearly two years: it cut the cost of money.
In his first major policy shift since taking the corner office on Mint Street, Governor Sanjay Malhotra announced a 25 basis point cut to the repo rate, bringing it down to 5.25%.
For the average citizen, this is a headline about lower EMIs. But for the market, this is a signal that the "War on Inflation" is officially over, and a new battle—the "War for Growth"—has begun.
Here is the Foreign Intel assessment of why the RBI blinked, and what happens to your money next.
1. The Trigger: The "Dangerous" 0.25%
Why cut rates when the economy is growing at a robust 8.2% (Q2 FY26)? Because inflation didn't just fall; it collapsed.
The October CPI data shocked policymakers by printing at a historic low of 0.25%. While cheap vegetables are good for voters, deflation (falling prices) is a nightmare for central bankers. It destroys corporate pricing power and delays investment.
Governor Malhotra’s move wasn't stimulus; it was a course correction. With inflation near zero and interest rates at 5.5%, the "Real Interest Rate" (Rate minus Inflation) was over 5%—an incredibly restrictive level that risked choking the economy.
Intel Note: The Monetary Policy Committee (MPC) voted unanimously for the cut, but kept the stance "Neutral." This suggests they are cutting because they can, not because they are panicked.
2. The Rupee Dilemma (90 is the New Normal)
There is a shadow over this rate cut: The Indian Rupee.
As the RBI lowers rates, the yield differential with the US dollar narrows, making Rupee assets less attractive to foreign investors. The Rupee breached the psychological 90-mark against the Dollar last week.
Usually, a central bank raises rates to defend a falling currency. Malhotra has done the opposite. This signals a major strategic shift: The RBI is now willing to tolerate a weaker currency (which helps exporters) to prioritize domestic credit growth.
3. The Winners & Losers
The transmission of this cut has been instant. HDFC Bank and SBI have already signaled cuts to their lending benchmarks.
The Winners: Borrowers & Auto Sector.
Home Loans: If you have a ₹50 Lakh home loan, a 25 bps cut saves you roughly ₹850/month. It’s not a fortune, but it improves sentiment.
Auto Stocks: Watch Maruti Suzuki and Tata Motors. Lower rates + the new year model launches are a perfect storm for a Q4 sales boom.
The Losers: Savers & Senior Citizens.
The golden era of 8% Fixed Deposits is ending. Banks will cut deposit rates faster than loan rates to protect their margins. If you have liquid cash, locking in a long-term FD now (before Jan 1st) is the smart move.
The Intel Forecast: What Happens in Feb 2026?
This was not a "one-and-done" cut.
The RBI’s own projections show inflation staying below 3% for the next two quarters. Unless the US Fed does something drastic, we expect Governor Malhotra to deliver another 25 bps cut in February 2026, bringing the repo rate to a flat 5.00%.
The Bottom Line: The "Malhotra Pivot" is here. The cost of capital is falling, the Rupee is sliding, and the equity markets are cheering. For the first time in years, the RBI is betting on growth over stability.
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