RBI Cuts Repo Rate to 5.25%: What the Latest Monetary Policy Means for India

The Reserve Bank of India’s Monetary Policy Committee (MPC) concluded its 58th meeting (Dec 3–5, 2025) under the leadership of Governor Shri Sanjay Malhotra. After reviewing India’s macroeconomic conditions, global environment, and inflation trajectory, the committee delivered a significant policy move. 🔻 Key Policy Decision The MPC unanimously reduced the repo rate by 25 bps to 5.25%. Following the cut: SDF rate: 5.00% MSF rate & Bank Rate: 5.50% Policy stance: Neutral This reflects the committee’s confidence in India’s benign inflation environment and resilient growth conditions. --- 📌 Growth & Economic Outlook ✨ Global Context The global economy remains stable but uncertain: US shutdown issues resolved, easing global stress. Inflation still above targets in many advanced economies. Tech stock valuations have raised volatility in global equity markets. USD strengthened due to safe-haven demand. 📈 India’s Domestic Growth India’s economy continues to shine despite global challenges. 🚀 Strong Q2 Growth GDP growth: 8.2% (six-quarter high) GVA growth: 8.1% Boosted by: GST & income tax rationalisation Softer crude oil prices Early government capex Healthy financial conditions 🟢 Q3 Outlook High-frequency indicators show continued momentum: Festive demand boosted consumption (Oct–Nov). Rural demand strong; urban demand stabilising. Private investment improving due to higher credit growth and capacity utilisation. Agriculture supported by a strong kharif season and better rabi sowing. Manufacturing output improving; services robust as usual. 📊 GDP Projections FY 2025–26: 7.3% Q3: 7.0% Q4: 6.5% Q1 2026–27: 6.7% Q2 2026–27: 6.8% Overall risk: Balanced --- 🪙 Inflation Outlook: Record Lows 📉 October 2025 CPI Hits All-Time Low Inflation cooled much faster than expected due to: A rare decline in food prices during Sep–Oct. Moderation in global commodity prices. Stable core inflation (excluding gold at 2.6% in Oct). Inflation has become broad-based and generalised, strengthening RBI’s confidence. 🔮 Inflation Projections FY 2025–26: 2.0% Q3: 0.6% Q4: 2.9% Q1 2026–27: 3.9% Q2 2026–27: 4.0% Note: Precious metal price spikes add ~50 bps to inflation. --- 🎯 Why RBI Cut the Repo Rate The MPC highlighted three major reasons: 1️⃣ Inflation has eased significantly Food prices exceptionally low Core inflation stable Inflation expected to stay near the 4% target in the first half of 2026–27 2️⃣ Growth remains resilient (but may soften slightly) India’s economy is still among the world’s fastest-growing. 3️⃣ Policy space available Benign inflation gives RBI room to support growth without risking price stability. Hence, the MPC voted unanimously for a 25 bps rate cut, maintaining a neutral stance. (Prof. Ram Singh suggested shifting to an accommodative stance.) Minutes of the meeting will be released on 19 December 2025. --- 💡 What This Means for You ✔ Borrowers Home loan & business loan EMIs may reduce over coming months. Better borrowing conditions for MSMEs and corporates. ✔ Investors Bond yields may soften — debt funds could benefit. Equity markets may react positively to lower rates. ✔ Economy Supports growth during uncertain global conditions. Helps maintain momentum in consumption & investment.