The Reserve Bank of India (RBI) has taken a significant step by reducing the repo rate by 25 basis points (0.25%), bringing it down from 5.50% to 5.25%. This decision came during the latest Monetary Policy Committee (MPC) meeting held on 5 December 2025. The central bank also announced a major ₹1.5 lakh crore liquidity boost to support economic growth and ensure smooth credit flow in the financial system.
This policy move is aimed at supporting India’s “Goldilocks economy”—a term used by RBI Governor Sanjay Malhotra to describe a phase where growth is strong, inflation is stable, and financial risks are manageable. The overall tone of the MPC was positive, and the policy stance remains “accommodative”.
Below is a detailed and easy-to-understand breakdown of all the major points.
Latest News Highlights
- Repo Rate Cut: Reduced by 25 bps to 5.25%.
- Liquidity Injection: RBI to inject ₹1.5 lakh crore into the system.
- Inflation Outlook: Expected to stay within the target range.
- GDP Growth: RBI projects strong growth for FY2025-26.
- Rupee Stability: RBI says external sector remains stable; no major concerns.
- EMIs to become cheaper: Home, auto, and personal loans likely to get more affordable in upcoming weeks.
Why Did RBI Cut the Repo Rate?
India’s economic situation has remained stable over the past quarters. Inflation has eased, industrial output is improving, and rural demand is recovering. With these positive indicators, the RBI felt confident that there was room to support growth further by making borrowing cheaper.
Below are the main reasons behind the cut:
✔ Inflation under control
RBI noted that inflation is moving closer to the 4% target, thanks to falling food prices and stable fuel costs.
✔ Need to boost domestic demand
Lower interest rates encourage borrowing for homes, vehicles, business expansion, and consumption.
✔ Encouraging investment
A lower cost of capital motivates companies to invest more in new projects and capacity building.
✔ Global economic pressure easing
Global interest rates have stabilized, giving India the space to adjust its own policy.
Impact on Borrowers: EMIs to Come Down
The most immediate benefit of a repo rate cut is seen by retail borrowers.
1. Home Loan EMIs
Banks are likely to pass on the rate cut to customers over the next few weeks.
For example, a ₹50 lakh home loan for 20 years may see a reduction of ₹800–₹1,100 per month depending on the lender.
2. Auto and Personal Loans
Floating-rate borrowers will see EMI reductions gradually.
New borrowers may get cheaper loans instantly.
3. Business Loans
MSMEs and startups could benefit due to lower working-capital interest rates.
This decision is expected to increase economic activity across housing, auto, retail, and business sectors.
RBI’s Economic Outlook: A Goldilocks Moment
RBI Governor Sanjay Malhotra described India’s current economic situation as a “rare Goldilocks period”—a phase where everything is balanced just right.
Strong GDP Growth
The central bank expects India to maintain strong growth driven by:
- Manufacturing recovery
- Strong services sector
- Rising exports
- Government infrastructure spending
Stable External Sector
Rupee volatility is under control, and foreign exchange reserves remain healthy.
Healthy Banking System
Indian banks continue to report strong balance sheets with low NPAs (bad loans).
Overall, the economic environment remains supportive for growth.
₹1.5 Lakh Crore Liquidity Boost: Why This Matters
RBI also announced a massive long-term liquidity infusion to ensure banks have enough money to lend.
This will help in:
- Stabilizing bond markets
- Ensuring cheaper credit for companies
- Preventing liquidity shortages during year-end
- Supporting banks ahead of festive and business seasons
The combination of the rate cut and liquidity support is expected to make borrowing smoother and more affordable across the economy.
RBI’s Key Messages to Markets
1. No threat to Rupee stability
RBI assured that India’s external sector is stable and foreign investors remain confident.
2. Inflation will remain within limits
Even though there may be short-term fluctuations, overall inflation is expected to stay in the desired range.
3. Monetary policy remains flexible
RBI will continue to monitor global and domestic developments and adjust rates if needed.
Sector-wise Impact
Real Estate
Lower interest rates will boost home sales, especially in urban and mid-income segments.
Automobile Sector
Car and two-wheeler demand may rise as loans become slightly cheaper.
Banking & NBFCs
Banks will see increased credit demand.
NBFCs will benefit from easier access to funds.
Stock Market
Rate cuts generally positive for:
- Banks
- Real estate
- Capital goods
- Automobile companies
Investors may respond positively in the near term.
Outcome
The RBI’s decision to cut the repo rate to 5.25% and inject ₹1.5 lakh crore liquidity marks an important step to support India’s economic growth. With inflation under control and domestic output improving, this move provides a timely boost to borrowers and industries.
For individuals, this means lower EMIs and more affordable loans.
For businesses, it opens the door for cheaper credit and expansion opportunities.
For the economy, it strengthens India’s position during a period of balanced growth.
Overall, the outlook remains optimistic, and India continues to progress in what the RBI calls a “rare Goldilocks moment.”
Source: RBI Press
