Goldilocks ran away.

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) cut the policy rate by 25 basis points (bps) to 5.25%. The MPC also raised the expected rate of growth of the economy to 7.3% from 6.8% and revised the rate of inflation down to 2% from 2.6% in FY26 (1 April 2025-31 March 2026). ET. India's Real GDP grew 8.2% in Q2 (Jul-Sep) of FY 2025-26, while the Nominal GDP grew 8.7% in the same period. The Private Final Consumption Expenditure (PFCE) grew 7.9%. pib.gov.in. The Real GDP grew by 7.8%, while the Nominal GDP grew 8.8% in the April-June quarter of FY 2025-26. Which means that the Real GDP grew by 8% in the first half of the current financial year. pib.gov.in. What was the reason for cutting rates to boost the economy when the growth rate is already soaring? India's headline inflation dropped to 0.25% in October 2025. This was down from 1.44% in September 2025 and 6.21% in October 2024. pib.gov.in. The combination of blistering growth rate with stable prices means that the Indian economy is in a "rare Goldilocks" period, said Governor of RBI Sanjay Malhotra. "The RBI also decided to conduct open market operations of Rs 1 trillion ($11.14 billion) to buy bonds this month, and another $5 billion in forex swaps to add liquidity to the banking system and speed up transmission of lower rates. India's benchmark 10-year bond yield dropped nearly 5 bps after the central bank's moves but rebounded thereafter to trade flat at 6.4841%." Reuters. Meanwhile, the rupee closed at 89.959 to one dollar yesterday, having touched 90.167 on 3 December, and down from 85.398 on 3 July 2025. exchangerates.org.uk. India's foreign exchange reserves fell by nearly $1.9 billion to $686.2 billion in the week ending 28 November. NDTV. The value of reserves change with changing exchange rates of foreign currencies and the market price of gold that the RBI holds but the RBI may also be selling dollars to support the rupee, which reduces the amount of rupees in the system. So, on the one hand, the RBI is trying to boost liquidity by cutting rates, buying bonds and a dollar swap and, on the other, it is having to buy rupees by selling dollars. The last meeting of the Federal Open Market Committee is on 9-10 December (Fed), and according to a majority of 100 economists surveyed by Reuters there was a strong consensus for a 25 basis points reduction by the Fed because of a softer labor market, even though the Personal Consumption Expenditures price index rose to 2.8% in October from 2.7% in September annually (CNN). If the Fed decides to hold its Funds rate at 3.75-4% set in its October meeting (US Bank) the rupee could come under renewed pressure. As the NEER (Nominal Effective Exchange Rate) and the REER (Real Effective Exchange Rate) have fallen by 6.8% against a basket of 40 currencies it has partially cushioned the effect 50% tariffs imposed on Indian exports by the US, wrote Somnath Mukherjee. Maybe, but a weaker rupee will increase the price of imports including petroleum. "The country's crude oil imports rose by 4.2% to 242.4 million tonnes (MT) in FY25, according to government data." TNIE. "Petrol tax in India consists of 55% of petrol's retailing price while diesel tax in 50% of the fuel's retail value." cleartax.in. The more the rupee falls, the more will be the cost of crude oil. Will the government cut taxes on retail fuel or pass it on to customers? That will instantly add to retail inflation as transport costs jump. Maybe that's why the bond market is unimpressed by the rate cut by the RBI. What happened to Goldilocks? She ran away. Storynory.