RBI Cuts Repo Rate to 5.25% in December 2025 MPC Meet as Inflation Hits Record Lows

The Reserve Bank of India held its 58th Monetary Policy Committee (MPC) meeting from December 3 to 5, 2025. After reviewing the latest inflation and growth trends, the MPC voted unanimously to cut the repo rate by 25 basis points to 5.25%. This is the first rate cut since June and shows the RBI’s confidence in the sharp drop in inflation and steady economic activity.

Inflation is at record lows, growth is holding strong and domestic demand is still supportive. This gave the RBI enough room to reduce rates while keeping a neutral stance.

Let’s break down the key updates and what they mean for the economy.

Policy Rate Decision and Rationale

The repo rate, the rate at which the RBI lends to banks, has now been reduced to 5.25%, down from 5.50%. A lower repo rate can reduce borrowing costs for banks. Over time, this may make loans cheaper for consumers and businesses.

Here are the revised policy rates:

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

The MPC also decided to maintain a neutral stance, signalling that policy will remain balanced and guided by incoming data. The committee noted that inflation had fallen much faster than expected, with both headline and core inflation easing. This created enough policy space for the RBI to support growth while keeping price stability intact.

Inflation Trends and Forecast

Headline CPI inflation dropped to a record low in October 2025, mainly because food prices corrected sharply. This is unusual for this time of year, when food inflation normally increases. The fall was supported by higher kharif output, better rabi sowing, healthy reservoir levels and steady supply conditions. Core inflation also stayed contained. Excluding gold, it eased further to 2.6% in October.

Updated Inflation Forecast for 2025-26

• Q3: 0.6%
• Q4: 2.9%
• Full-year average: 2.0%
• Q1 2026-27: 3.9%
• Q2 2026-27: 4.0%

The RBI noted that risks remain evenly balanced, with food prices still the main factor to watch in the coming months.

Growth Outlook Remains Strong

India’s GDP grew 8.2% in Q2, the strongest in 6 quarters. Growth continues to be supported by resilient domestic demand and favourable policy conditions.

Key growth drivers include:

• Strong rural and festival-season consumption
• Higher government capital expenditure
• Expanding bank credit and healthy financial conditions
• Better agricultural output due to improved sowing and reservoir levels
• Robust industrial and services activity

Updated GDP Growth Forecast

• 2025-26: 7.3%
• Q3: 7.0%
• Q4: 6.5%
• Q1 2026-27: 6.7%
• Q2 2026-27: 6.8%

The RBI stated that the overall outlook remains positive, though a few early signs of softening have appeared in some recent indicators.

Global and External Factors to Watch

The global environment remains uncertain, even though some risks have eased. The RBI is watching a few key trends:

• Reduced geopolitical tensions but still elevated uncertainty
• The US dollar is strengthening due to safe-haven demand
• Volatile financial markets
• Uneven inflation trends across advanced economies
• Weak global trade and softer services exports

These external factors may impact India’s exports and capital flows if conditions worsen.

Why This Rate Cut Matters for Borrowers

A lower repo rate reduces borrowing costs for banks, which can make loans cheaper for customers over time. While the impact is not always immediate, banks may choose to pass on the benefit in the coming weeks.

Here’s what this move could mean for borrowers:

• EMIs may reduce gradually as banks adjust loan pricing
• New loans may become slightly more affordable
• Liquidity conditions stay favourable
• Businesses may find it easier to access credit

The RBI noted that inflation is well below target, so the rate cut helps support growth without risking price stability.

Key Takeaways from the December 2025 MPC

• Repo rate cut to 5.25%: First cut since June
• Inflation at record lows: Driven by sharp food price correction
• Growth projection strong: FY26 expected at 7.3%
• Neutral stance retained: Policy remains data-driven
• Domestic demand healthy: Rural and festival spending boosted activity
• Global risks continue: Weak exports and market volatility in focus