India's economic mood turned visibly brighter on Friday after the Reserve Bank of India (RBI) cut the repo rate by 25 basis points to 5.25 per cent, signalling the beginning of a softer interest-rate phase after months of tight financial conditions.

The unanimous decision by the Monetary Policy Committee (MPC) came alongside stronger growth projections and inflation staying comfortably within the RBI's expectations.

The central bank's message was straightforward: domestic growth is holding firm, inflation has cooled and policy space is now available to support demand without risking financial stability.

With Gross Domestic Product (GDP) growth upgraded and inflation easing to 0.3 per cent in October, the RBI said it would continue with a neutral stance while ensuring liquidity remains comfortable.

The rupee, which has been under pressure recently, showed signs of stability after the policy announcement, touching 89.92 before closing at 89.98 against the dollar.

Bond yields also eased through the day, helped by the RBI's plan to infuse liquidity through Rs 1 lakh crore of Open Market Operations (OMO) purchases and a USD 5 billion forex swap.

Even though rate cuts usually weigh on the rupee, analysts said Friday's movement reflected growing confidence that India's macro fundamentals remain strong, supported by solid foreign exchange reserves of USD 686.2 billion and steady domestic demand.

Interestingly, RBI Policy rates (like the repo rate) and the Rupee's USD value have an inverse relationship: higher RBI rates attract foreign investment (capital inflows) and strengthen the Rupee.

On the flip side, lower rates boost domestic economic activity, but can weaken Rupee value.

Exporters welcomed the rate cut as an important step at a time when global demand is uneven, and financing costs remain high.

FIEO said the reduction would help exporters access cheaper working capital, manage cash flows better and invest more aggressively in technology and international markets—particularly useful for MSMEs facing tight liquidity.

Engineering exporters praised the move too, saying it would revive order flows and encourage long-term manufacturing investment.

Industry bodies stressed the need for quick transmission by banks so that the benefits reach small and mid-sized firms that are most sensitive to borrowing costs.

PHDCCI said the policy supports India's growth momentum amid global uncertainties. While some early signs of moderation are visible in manufacturing indicators, the chamber noted that domestic fundamentals—banking system health, investment activity and foreign reserves—remain strong. It also welcomed the RBI's focus on improving customer grievance redressal, saying it would improve ease of doing business.

The real estate industry responded with clear optimism, saying the EMI relief—Rs 750–800 on a Rs 50-lakh loan or up to Rs 1,200 on a Rs 60-lakh loan—could be the psychological push many homebuyers need.

Developers said the move comes at the right moment, when property prices across metros are high, and buyers are waiting for affordability to improve.

Cities like Mumbai, Delhi-NCR, Bengaluru and Goa, already seeing strong lifestyle and investment-driven housing demand, are expected to witness faster footfalls and quicker decisions.

Tier-II cities too, could benefit as lower interest rates expand the buyer base and give developers confidence to plan long-term projects rather than short, cautious cycles.

Lower borrowing costs are also expected to make second homes and investment properties more attractive, improving rental yields and exit visibility for investors looking at medium-term returns.

Economists said the MPC's unanimous decision reflects confidence in India's macroeconomic stability. With financing costs expected to ease gradually, private investment—especially in infrastructure, engineering, technology and heavy manufacturing—could gather pace in the coming quarters.

Rajeev Sharan, Head-Criteria, Model Development & Research of Brickwork Ratings, said, " By cutting the repo rate by 25 bps to 5.25 per cent while maintaining a neutral stance, the MPC has clearly prioritised sustaining growth without losing sight of its 4 per cent inflation target."

Sharing the Fintech perspective, Adhil Shetty, CEO & Co-Founder, BankBazaar said, "With a 25 basis point cut, policy is now more clearly aligned towards supporting growth. Home loan borrowers will see modest but meaningful relief as lending rates adjust. The cumulative 125 basis point reduction this year has already eased EMIs, and for a Rs 50 lakh loan over 20 years the fall in rates can reduce lifetime interest outgo by about Rs 9 lakh.

"Existing borrowers can enhance savings by holding EMIs steady and shortening tenure, which helps bring long-term liabilities under better control. Deposit rates, however, are likely to soften further, making it important for savers, especially retirees, to lock into longer tenors while higher slabs remain available."