NEW DELHI, Dec. 6 -- The Reserve Bank of India (RBI) reduced its policy rate on Friday in line with market expectations as benign inflation continues to provide space for monetary policy support to economic growth. The decision came in what governor Sanjay Malhotra described as a "rare Goldilocks" period of 8% growth and 2% inflation. RBI's decision, experts believe, will provide the necessary cushion to future growth as some of its cyclical drivers are expected to ease and fiscal consolidation continues while inflation remains low. RBI also upped its growth projection for 2025-26 to 7.3%. The Monetary Policy Committee (MPC) of the RBI reduced the policy or repo rate by 25 basis points - one basis point is one hundredth of a percentage point - on Friday to bring it to 5.25%. Repo rate is the interest rate at which the RBI lends money to the banks and therefore it acts as the base for retail lending rates in the economy. To be sure, retail lending rates take some time to reflect the reduction in repo rates, which is known as monetary transmission in banking lingo. The latest reduction takes the cumulative reduction in the policy rate in this easing cycle to 125 basis points. MPC first cut the policy rate by 25 basis points in its February meeting and went on to cut another 25 and 50 basis points in its April and June meetings. To be sure, MPC retained its policy stance as neutral between the October and December meetings, which precludes a preordained path for monetary policy going forward. Experts do not see another rate cut immediately but do not rule out one in the course of the next fiscal year or even earlier if growth is seen to be softening. MPC's decision should give yet another policy boost to the economic momentum that has already gained from fiscal stimuli including the income tax and Goods and Services Tax (GST) reductions. While this has given a big boost to consumption it has also helped mitigate some of the headwinds due to US tariffs on Indian exports. The MPC's move to cut interest rates in its December meeting was widely expected and had been indicated by none other than the RBI governor himself in an interview in late November. "At the last MPC (monetary policy committee) meeting in October, it was communicated clearly there is room to cut policy rates. Since then, the macroeconomic data we have received has not indicated that the room to lower rates has decreased. There is certainly room (to lower rates) but whether the MPC takes a call on that in the coming meeting or not depends on the committee," he said then. Friday's MPC resolution underlines this reasoning. " MPC noted that headline inflation has eased significantly and is likely to be softer than the earlier projections, primarily on account of the exceptionally benign food prices.Thus, 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," it said. As far as the future outlook for the economy is concerned, MPC has made favourable revisions to both its growth and inflation forecasts between the October and December meetings. GDP growth for 2025-26 is now projected at 7.3% compared to October's forecast of 6.8% while benchmark inflation (as measured by Consumer Price Index) is expected at 2% instead of 2.6% in October's MPC resolution. Quarterly projections for GDP growth now stand at 7% in the quarter ending December 2025, 6.5% in March 2026, 6.7% in June 2026 and 6.8% in September 2026. The inflation forecast for the quarters ending December 2025, March 2026, June 2026 and September 2026 are 0.6%, 2.9%, 3.9% and 4% respectively. "Even though RBI has lowered 1HFY27 inflation forecast by 50bp (4.5% previously to 4% now), our forecasts are 50bp lower (c3.5%). If we are correct, and the RBI eventually makes further downward adjustment to inflation, there would be space to ease further, if growth requires it," HSBC Chief India Economist Pranjul Bhandari said in a note. "Beyond today's rate cut, we believe the RBI has taken a dovish turn simply because it remains more concerned about downside growth risks in 2026 than upside inflation risks. This has meant that liquidity conditions have been eased, interest rate cut has been undertaken, and steps to support the INR [rupee] have also been initiated. This to us indicates a 'growth centrality' mindset in the policy decision framework, which will mean that for future actions, the sensitivity of what RBI needs to do in terms of support measures will depend much more on growth, than on inflation," Rahul Bajoria, India economist at Bank of America, said in a note....