The Reserve Bank of India’s Monetary Policy Committee unanimously cut the policy repo rate by 25 basis points to 5.25% in its December 2025 meeting. This marks the fourth rate reduction in 2025, bringing the cumulative cut for the year to 125 basis points. The move comes amid a backdrop of strong economic growth and subdued inflation, described by RBI Governor Sanjay Malhotra as a “rare Goldilocks period”.
Key details and implications of the announcement:
- Economic Forecasts: The RBI revised its FY26 GDP growth estimate upward to 7.3% (from 6.8%) and lowered its CPI inflation projection to 2% (from 2.6%).
- Liquidity Measures: To ensure smoother monetary policy transmission and support liquidity, the central bank announced plans for Open Market Operations (OMO) purchases of government securities worth ₹1 lakh crore and a three-year dollar-rupee buy-sell swap of $5 billion.
- Impact on Borrowers: The repo rate cut is expected to lead to lower interest rates on loans, benefiting borrowers through reduced Equated Monthly Instalments (EMIs) for home and auto loans.
- Impact on Investors: Lower interest rates are likely to impact fixed deposit returns, while potentially boosting rate-sensitive sectors of the stock market, such as real estate, auto, and banking.
- Policy Stance: The MPC has maintained a “neutral” policy stance, leaving room for future adjustments based on evolving economic conditions.
