In a move that was widely anticipated by financial markets, the Reserve Bank of India (RBI) has announced a reduction in its key policy rate. The central bank's Monetary Policy Committee (MPC) decided to lower the repo rate by 25 basis points (bps) during its meeting in December.
Key Details of the December Policy Decision
The latest cut brings the repo rate, at which the RBI lends to commercial banks, down to 5.25 per cent. This decision, announced on 05 December 2025, aligns with the expectations of most economists and analysts. The MPC had previously chosen to hold the rates steady in its August and October reviews, making this the first change after a brief pause.
Cumulative Rate Reductions Since February
This 25 bps cut is not an isolated action but part of a broader monetary easing cycle. Since February of this year, the RBI's rate-setting panel has now slashed the repo rate by a total of 125 basis points. This significant cumulative reduction highlights the central bank's ongoing efforts to support economic growth by making borrowing cheaper for businesses and consumers.
Context and Potential Implications
The decision to resume rate cuts after holding steady suggests the MPC's continued focus on addressing growth concerns while keeping an eye on inflation. A lower repo rate typically aims to stimulate investment and consumption by reducing the cost of loans for banks, which can then be passed on to borrowers. The impact of this policy move will be closely watched across various sectors of the Indian economy, from real estate and automobiles to corporate capital expenditure.
Market participants and borrowers will now observe how quickly and to what extent commercial banks transmit this rate cut by reducing their lending and deposit rates. The RBI's stance and future guidance will be crucial in determining the trajectory of credit growth and economic activity in the coming months.
