05 Dec 2025

RBI Cuts Repo Rate to 5.25%, Making Loans More Affordable

In a move aimed at bolstering economic growth, the Reserve Bank of India (RBI) has reduced its key repo rate by 25 basis points, lowering it from 5.5% to 5.25%. The decision, announced by RBI Governor, Mr. Sanjay Malhotra today, was taken after a 3-day meeting of the Monetary Policy Committee (MPC). This rate cut is expected to make loans more affordable, particularly in sectors like housing and automobiles.

The RBI’s decision comes amid a balancing act between rising inflationary pressures and the weakening Indian rupee. Despite the rupee hitting a new low, the central bank has opted to prioritize stimulating growth in the economy. This is the second rate cut this year, following a reduction from 6% to 5.5% in June, prompted by easing inflationary concerns.

Inflation and Economic Growth Projections

The RBI has revised its inflation forecast for the coming years, predicting a softer retail inflation rate of 2% for FY2025-26, down from previous estimates. For the first quarter of FY2026-27, inflation is projected at 3.9%, lower than the earlier estimate of 4.5%. The central bank has also raised its Gross Domestic Product (GDP) growth forecast for FY2025-26 to 7.3%, up from the previous projection of 6.8%, citing better-than-expected growth momentum.

The RBI’s latest monetary policy assessment also raised its GDP growth estimate for the third quarter of FY2025-26 to 6.7%, compared to the earlier projection of 6.4%. The country’s GDP recorded an impressive 8.2% growth in the previous quarter, marking a six-quarter high.

Other Key Measures

Apart from the repo rate cut, the MPC has adjusted the Standing Deposit Facility (SDF) to 5% and the Marginal Standing Facility (MSF) to 5.5%. In a bid to enhance liquidity and facilitate smoother monetary transmission, the RBI will also carry out forex swaps and buy bonds worth Rs 1 lakh crore through Open Market Operations (OMO).

Reflecting on the year, Mr. Malhotra noted that 2025 saw resilient growth and stable inflation despite global uncertainties. The RBI’s stance remains neutral as it heads into 2026, with continued focus on sustaining economic stability.