Mumbai: The Reserve Bank of India (RBI), aiming to provide a further boost to economic activity, announced a cut in the benchmark Repo Rate by 25 basis points (bps) during its December 2025 Monetary Policy Review. The decision brings the Repo Rate down to 5.25%. This marks the fourth consecutive rate cut in the financial year 2025-26, accumulating a total reduction of 125 bps for the year. The move comes against the backdrop of benign inflation levels and continued robust growth.
Key Decisions at a Glance:
| Policy Indicator | New Rate | Change |
| Repo Rate | 5.25% | Cut by 25 bps |
| Standing Deposit Facility (SDF) Rate | 5.00% | Revised |
| Marginal Standing Facility (MSF) Rate | 5.50% | Revised |
| Bank Rate | 5.50% | Revised |
| Policy Stance | Neutral | Retained |
Rationale Behind the Policy Action:
The Monetary Policy Committee (MPC), led by Governor Shaktikanta Das, decided to reduce the rates primarily due to two significant factors:
- Inflation Easing Significantly: Headline Consumer Price Index (CPI) inflation had dropped to an all-time low of approximately 0.25% in October 2025. This provides substantial headroom for the RBI to shift focus toward growth support, as inflation remains well below the central bank’s target of 4%.
- Robust Economic Growth: The Indian economy demonstrated resilience by registering a strong GDP growth of 8.2% in the second quarter of the financial year 2025-26, affirming the underlying strength of the economy.
With inflation risks largely subdued, the central bank’s action is calibrated to enhance credit flow and stimulate investment and consumption demand.
Implications for the Economy:
- Loans and EMIs: The rate cut is expected to lead to a further reduction in lending rates by commercial banks, lowering the Equated Monthly Installments (EMIs) for home, car, and other retail loans linked to the repo rate.
- GDP Projection: The RBI revised the Real GDP growth forecast for FY 2025-26 upwards to 7.3% from its previous estimate of 6.8%.
- Liquidity Management: To ensure smooth transmission of the rate cut, the RBI announced Open Market Operations (OMOs) worth ₹1 lakh crore for purchasing government securities, injecting crucial liquidity into the system.
The “Neutral” stance indicates that while the RBI is currently cutting rates, it reserves the flexibility to move either way (cut or hike) depending on future data points related to inflation trajectory and growth momentum.
