In a significant move aimed at bolstering economic growth, the Reserve Bank of India (RBI) announced a reduction in its key lending rate. The decision was taken during the three-day Monetary Policy Committee (MPC) meeting which concluded on December 5, 2025.
Key Announcements from the December MPC
Chaired by Governor Sanjay Malhotra, the MPC decided to cut the repo rate by 25 basis points. This brings the benchmark rate down from its previous level to 5.25 per cent. The central bank has opted to maintain a neutral stance on its monetary policy, indicating a balanced approach towards future inflation and growth risks. The updated rates were officially released for the banking sector following the conclusion of the deliberations.
Implications for Borrowers and the Economy
The reduction in the repo rate is a welcome development for retail and corporate borrowers. A lower repo rate typically encourages commercial banks to reduce their own lending rates. This can lead to cheaper loans for homes, vehicles, and business expansion, potentially stimulating investment and consumption in the economy.
The RBI's decision reflects its assessment of the prevailing macroeconomic conditions, where managing inflation while supporting growth remains a priority. The neutral stance suggests the central bank is keeping its options open and will base future decisions on incoming data.
Market and Expert Reactions
Financial markets and industry experts generally view a rate cut as a positive signal. The move is expected to:
- Reduce the cost of borrowing across the board.
- Improve liquidity in the financial system.
- Boost sentiment in equity and debt markets.
The full impact of this policy change will unfold in the coming weeks as banks transmit the rate cut to their customers. All eyes will now be on the next meeting of the Monetary Policy Committee to gauge the future trajectory of interest rates in India.
