RBI Lowers Repo Rate to 5.25% After a 25 Basis Points Cut

Through most of 2025, the Reserve Bank of India has been quietly but steadily easing policy. On 5 December 2025, the Monetary Policy Committee (MPC) delivered yet another 25 basis points reduction in the policy repo rate, taking it from 5.50% to 5.25%. With this, the total easing in 2025 now stands at 125 basis points, even as growth remains robust and inflation sits at historic lows.

Let’s break down with this blog how the latest RBI decision works, why the MPC chose to cut again, what changed on growth, inflation and liquidity, and what it could mean for borrowers, savers and markets in the months ahead.

What Exactly Did the RBI Monetary Policy Announce?

The six-member MPC, led by RBI Governor Sanjay Malhotra, unanimously voted to cut the policy repo rate by 25 basis points to 5.25% and retained a neutral stance.

As a result, the following rates now apply:

• Repo rate: 5.25%
• Standing Deposit Facility (SDF): 5.00%
• Marginal Standing Facility (MSF) and Bank Rate: 5.50%

This is the fourth cut of the year, taking the cumulative reduction in 2025 to 125 basis points, after three earlier cuts beginning in February.

On the projections front, the RBI:

• Raised FY26 real GDP growth forecast to 7.3% from 6.8% earlier.
• Lowered inflation forecast for the current fiscal to 2% from 2.6%, after retail CPI fell to around 0.25% in October 2025, its lowest on record.

Why Another RBI Rate Cut Now? The Inflation-Growth Mix

On the surface, an economy growing above 7% would not normally demand further rate cuts. However, the inflation picture has changed dramatically. Headline CPI inflation has dropped far below the RBI’s 4% target, helped by an unusually sharp correction in food prices and still-contained core inflation.

At the same time, growth has surprised on the upside. RBI now expects FY26 real GDP growth of 7.3%, and estimates suggest the first half of FY26 has grown close to 8%. Governor Malhotra described this combination of strong growth and very low inflation as a “goldilocks period” for the Indian economy.

In this backdrop, the central bank judged that there was space to support growth and credit without jeopardising price stability. The December move is therefore a continuation of a calibrated easing cycle, not a one-off reaction.

RBI’s Stance: Supportive, But Still Data Driven

Despite multiple cuts this year, the RBI has kept its policy stance neutral rather than shifting to an explicitly accommodative posture.

In his statement and press interaction, Governor Malhotra stressed a few key points:

• The economy has undergone “rapid disinflation” since the October policy review.
• Domestic drivers such as healthy agricultural prospects, corporate and bank balance sheets, and past reforms should continue to support activity.
• The MPC will remain data-dependent, watching how inflation, domestic demand and global risks evolve before deciding on further action.

On the rupee, Mr. Sanjay Malhotra reiterated that the RBI allows the currency to find its fair level and intervenes mainly to curb “abnormal volatility,” noting that a 5% rupee depreciation can add roughly 35 basis points to inflation over time.

Liquidity Measures by RBI MPC: A Parallel Push for Transmission

The repo rate cut did not come alone. To ensure that the banking system has enough durable liquidity to pass on lower rates, RBI announced:

• Open Market Operation (OMO) purchases of government securities worth ₹1 lakh crore.
• A three-year dollar-rupee buy-sell swap of USD 5 billion in December.

Together, these moves could inject up to around USD 16 billion equivalent into the banking system, easing money-market conditions and helping lower bond yields.

For markets, this signalled that RBI is serious about transmission, not just headline rate cuts. Bond yields were broadly steady to slightly softer, while equity indices such as the Nifty and Sensex inched higher post-announcement.

What Does RBI’s Stance Mean for Borrowers, Savers and Investors?

Borrowers; gradual EMI relief: Loans linked to external benchmark-based lending rates (EBLR) and repo-linked products should see another round of rate reductions as banks re-price. For home loan and auto loan borrowers, the impact may be modest per EMI, but meaningful when combined with the 125 basis points of cuts delivered through 2025.

Savers; pressure on deposit rates: The flip side of lower lending rates is that fixed deposit and savings rates may face renewed downward pressure. Banks that had raised deposit rates to compete for liquidity earlier in the year may now start trimming, especially at the shorter end of the curve.

Markets; supportive backdrop, but not a “free money” regime: Lower policy rates, benign inflation, and additional liquidity are typically supportive for:

• Government and high-quality corporate bonds
• Rate-sensitive sectors such as banking, real estate and autos
• Broader risk sentiment, if global conditions stay stable

However, the neutral stance and explicit focus on external risks (US tariffs, rupee moves, global yields) suggest this is a measured support, not an aggressive attempt to flood the system with liquidity.

What are Analysts Expecting from Here?

Commentary across brokerages and research houses is cautiously optimistic:

• Several economists, including those cited by Reuters and Investing.com, expect room for one more 25 basis point cut if inflation stays near 2% and growth momentum holds.
• Others argue that the December move might be the last cut in this phase, with the MPC preferring to pause and reassess global risks, including US monetary policy and external demand.

In practical terms, the forward path will likely depend on three data streams:

1. Whether inflation remains anchored near the revised 2% projection.
2. How the rupee behaves amid global risk-off episodes and trade tensions.
3. The pace of credit growth and transmission of the cumulative 125 basis points easing to the real economy.

For now, the December decision cements 2025 as a year in which the RBI used rare policy space created by very low inflation to nudge borrowing costs lower, while still keeping one eye firmly on macro stability.

Disclaimer:

Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. The securities are quoted as an example and not as a recommendation. This is nowhere to be considered as advice, recommendation, or solicitation of an offer to buy or sell or subscribe for securities. INDStocks SIP / Mini Save is a SIP feature that enables Customer(s) to save a fixed amount on a daily basis to invest in Indian stocks. INDstocks Private Limited (formerly known as INDmoney Private Limited) 616, Level 6, Suncity Success Tower, Sector 65, Gurugram, 122005, SEBI Stock Broking Registration No: INZ000305337, Trading and Clearing Member of NSE (90267, M70042) and BSE, BSE StarMF (6779), SEBI Depository Participant Reg. No. IN-DP-690-2022, Depository Participant ID: CDSL 12095500, Research Analyst Registration No. INH000018948 BSE RA Enlistment No. 6428. Refer to https://indstocks.com/pricing?type=indian-stocks; https://www.indstocks.com/page/indian-stocks-sip-terms-and-condition for further details.