In a significant move aimed at bolstering economic growth, the Reserve Bank of India (RBI) has announced a reduction in its key lending rate. The decision was taken during the December 2025 review of the Monetary Policy Committee (MPC).
Key Decision: A 25 Basis Points Rate Cut
The central bank, under the leadership of Governor Sanjay Malhotra, has decided to lower the repo rate by 25 basis points. This brings the new repo rate down to 5.25 percent. The MPC concluded its three-day deliberations on this matter before making the announcement public on December 5, 2025.
Alongside the rate reduction, the committee has chosen to maintain a neutral monetary policy stance. This indicates that the RBI is not committed to a fixed path for future rate movements and will adjust its policy based on incoming economic data.
Implications for Borrowers and the Economy
The reduction in the repo rate, which is the rate at which the RBI lends to commercial banks, is expected to make borrowing cheaper for banks. This cost reduction is typically passed on to consumers and businesses in the form of lower interest rates on loans.
The potential impacts include:
- Lower EMIs: Home, car, and personal loans could become more affordable.
- Boost for Businesses: Reduced cost of capital can encourage corporate investment and expansion.
- Economic Stimulus: The move is seen as a measure to support domestic demand and economic activity.
A Cautious and Data-Driven Approach
By pairing the rate cut with a neutral stance, the RBI has signaled a balanced approach. The central bank is providing support to growth while retaining flexibility to respond to inflationary pressures or global financial uncertainties in the future.
The decision reflects the MPC's assessment of the current macroeconomic landscape, where managing growth priorities remains crucial. The updated policy rates are now effective for the banking sector, and lenders are expected to review their lending and deposit rates in the coming days.
