The RBI’s Monetary Policy Committee (MPC) today on December 5, 2025 has revised the repo rate to 5.25%, following a unanimous decision to reduce it by 25 basis points from 5.50%. This is the fourth rate cut of 2025, totaling 125 bps of easing so far, marking the lowest rate since July 2022. The MPC has kept its neutral stance, allowing flexibility for upcoming policy moves.
RBI’s New Repo Rate Cut to 5.25%
Sanjay Malhotra, the 26th Governor of the RBI since December 11, 2024, emphasized the supportive monetary environment during his policy announcement on December 5, 2025. “The MPC voted unanimously to reduce the policy repo rate by 25 basis points to 5.25 per cent with immediate effect,” he stated, highlighting inflation at a benign 2.2% and growth at 8% for the first half of the year. He characterized the conditions as a “rare Goldilocks period,” noting, “Despite an unfavorable and challenging external environment, the Indian economy has shown remarkable resilience.” Malhotra added that the headroom from the inflation outlook allows the RBI to “remain growth supportive” and “continue to meet productive requirements of the economy in a proactive manner.”
Addressing concerns over the rupee’s depreciation to an all-time low of 90.43 against the USD, Malhotra clarified that the RBI does not target any specific band for the currency. “We just let rupee find its correct level,” he said, stressing that interventions are not aimed at supporting the rupee but maintaining orderly market conditions. “We are in a very comfortable position… volatility can happen,” he remarked, affirming the external sector’s stability. Looking ahead, he shifted focus to transmission: “Having reduced the policy rate by 25 basis points, the focus will now be on transmission of the rate cut to the real economy.” Malhotra also signaled potential for further easing, indicating room for additional cuts if inflation remains subdued.
RBI’s Key Repo Rate Decisions and Economic Signals
The RBI’s monetary policy in 2025 has been characterized by a gradual easing cycle, driven by disinflationary trends and robust domestic growth amid global uncertainties. Here’s a timeline of key changes:
| Date | Repo Rate Change | New Repo Rate | Basis Points Cut | Key Context |
|---|---|---|---|---|
| February 7, 2025 | -25 bps | 6.25% | First cut since May 2020 | Easing inflation pressures post-global recovery. |
| April 9, 2025 | -25 bps | 6.00% | Second consecutive cut | Continued decline in core inflation. |
| June 6, 2025 | -50 bps | 5.50% | Larger-than-expected cut; stance shifted to neutral; CRR reduced by 100 bps to 3% | Sharp drop in retail inflation; policy to boost lending. |
| October 1, 2025 | Unchanged | 5.50% | Pause amid global trade risks | GDP forecast raised to 6.8%; inflation projection cut to 2.6%. |
| December 5, 2025 | -25 bps | 5.25% | Fourth cut of the year | Unanimous MPC vote; liquidity infusion via OMOs and forex swaps. |
RBI New Repo Rate Impacts
For Borrowers: Lower EMIs and Cheaper Loans
- Home, auto, and personal loan borrowers with floating rates will see immediate relief as banks pass on the cut. EMIs could decrease by 0.25-0.50% on average, saving ₹200-500 monthly on a ₹50 lakh home loan over 20 years.
- For example, on a ₹30 lakh home loan at 8.5% interest (pre-cut), the EMI drops from ~₹26,000 to ~₹25,900 post-adjustment. Fixed-rate loans remain unaffected.
- This affordability boost is likely to spur demand in rate-sensitive segments, with economists forecasting a 5-10% rise in new loan disbursals in Q1 2026.
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2. For the Banking and Financial Sector: Enhanced Liquidity and Profitability
- Banks benefit from cheaper wholesale funding, improving net interest margins (NIMs) by 5-10 bps in the short term. The liquidity infusion via OMOs and swaps (up to $16 billion equivalent) reduces funding pressures, enabling faster lending.
- Credit growth is projected to accelerate to 13-14% YoY by mid-2026, supporting financial inclusion and MSME financing.
- However, transmission may take 1-2 months, as seen in prior cuts, with full impact visible in January 2026 lending rates.
3. For Real Estate and Consumer Durables: Sectoral Revival
- Real estate sees a direct fillip, with lower home loan rates potentially increasing sales by 8-12% in affordable housing segments. Developers anticipate renewed buyer interest, reversing a 3-month slowdown due to high prices.
- Auto and consumer durables sectors could witness a 5-7% demand uptick, as EMI reductions make big-ticket purchases more accessible. Rate-sensitive indices like Nifty Auto rose 1.5-2% immediately post-announcement.
4. For Investors and Depositors: Shift in Asset Allocation
- Fixed deposit (FD) rates may fall by 20-30 bps for new issuances, particularly in 1-3 year tenures, squeezing returns for senior citizens and conservative investors (current 1-year FD yields ~6.5-7%).
- Equity markets reacted positively, with Nifty Bank up 0.3-1% and broader indices gaining 0.5%, signaling optimism for growth stocks. Experts recommend diversifying into equities or debt funds to offset lower yields.
- Bond yields softened by 3-5 bps, benefiting gilt funds and insurance-linked investments.
5. Broader Economic Implications: Growth Boost with Inflation Vigilance
- GDP growth forecast revised upward to 7.3% for FY2025/26 (from 6.8%), driven by consumption and investment revival. The RBI described this as a “rare Goldilocks period” of low inflation and strong output.
- Minimal drag from external factors: U.S. tariffs have “minimal impact” on India, per Governor Malhotra, thanks to diversified exports and forex reserves at $680 billion.
- Risks include delayed transmission or rupee volatility (at 90.43/USD), but the neutral stance leaves room for further 25-50 bps cuts in 2026 if inflation stays below 3%.
| Stakeholder/Sector | Short-Term Impact (1-3 Months) | Long-Term Outlook (6-12 Months) |
|---|---|---|
| Home Loan Borrowers | EMI savings of 0.25%; 5% rise in approvals | 10%+ demand growth; stable housing prices |
| Depositors | FD rates down 20-30 bps | Shift to hybrids; yields stabilize at 6-6.5% |
| Real Estate | 8% sales boost | Inventory drawdown; 7% price appreciation |
| Stock Markets | 0.5-1% index gains | 12-15% returns in banking/auto sectors |
| Overall Economy | Credit growth to 12.5% | GDP at 7%; inflation at 2.5% |