RBI MPC meeting: Repo rate cut by 25 basis points to 5.25%

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday (December 5, 2025) voted unanimously to reduce the policy repo rate by 25 basis points (bps) to 5.25% with immediate effect.
The RBI’s decision comes in the backdrop of data showing India’s real Gross Domestic Product (GDP) growth accelerated to 8.2% in the second quarter and average headline inflation reduced to 1.7%, breaching the lower tolerance threshold (2%) of the inflation target (4%) set by RBI.
With this, the MPC under Governor Sanjay Malhotra has cumulatively cut the repo rate by 125 basis points on four occasions. He took over as RBI Governor on December 11, 2024.
The reduction in repo rate will lead to lower interest rates for borrowers and savers.
After this rate cut, the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) will stand adjusted to 5% and the marginal standing facility (MSF) rate and the Bank Rate to 5.50%. The MPC also decided to continue with the neutral stance indicating rates may go up or reduce further.
On the rationale for the decisions of the MPC, Mr. Malhotra in the Governor’s statement said: “The MPC noted that headline inflation has eased significantly and is likely to be softer than the earlier projections, primarily on account of the exceptionally benign food prices.”
“The underlying inflation pressures are even lower as the impact of increase in price of precious metals is about 50 basis points (bps). Growth, while remaining resilient, is expected to soften somewhat. Thus, the growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum,” he said.
Stating that economic activity during the first half of the financial year benefited from Income Tax and Goods and Services Tax (GST) rationalisation, softer crude oil prices, front-loading of government capital expenditure, and facilitative monetary and financial conditions supported by benign inflation, he said high-frequency indicators suggest that domestic economic activity was holding up in Q3, although there were some emerging signs of weakness in few leading indicators.
Taking various factors into consideration, real GDP growth for 2025-26 has been projected at 7.3% which is 0.5% more than the earlier projection, with Q3 at 7%; and Q4 at 6.5%. Real GDP growth for Q1 in 2026-27 is projected at 6.7% and Q2 at 6.8%. The risks are evenly balanced.
Also taking various factors into consideration, Consumer Price Index (CPI) inflation for 2025-26 is now projected at 2% which is 0.6% downwards than the earlier projection with Q3 at 0.6% and Q4 at 2.9%. CPI inflation for Q1 in 2026-27 and Q2 are projected at 3.9% and 4%, respectively, the Governor said.
‘A rare goldilocks period’
In his opening remark, the Governor said since the October policy, the Indian economy had witnessed rapid disinflation, with inflation coming down to an unprecedentedly low level.
“For the first time since the adoption of flexible inflation targeting (FIT), average headline inflation for a quarter at 1.7% in Q2:2025-26, breached the lower tolerance threshold (2%) of the inflation target (4%). It dipped further to a mere 0.3% in October 2025,” he said.
“On the other hand, with real GDP growth accelerating to 8.2% in Q2, buoyed by strong spending during the festive season which was further facilitated by the rationalisation of the Goods and Services Tax (GST) rates. Inflation at a benign 2.2% and growth at 8% in H1:2025-26 present a rare goldilocks period,” he emphasised.
C.S. Setty, Chairman at SBI & Chairman at Indian Banks’s Association (IBA) while commenting on the rate cut said, “RBI’s December 2025 monetary policy delivered a clear and confident message that the Indian economy remains on strong footing, with robust growth accompanied by comfortably low inflation. The upward revision of GDP growth projection for 2025–26 to 7.3% from earlier 6.8%, underscores RBI’s optimism”.
“The decision to cut rates while keeping the door open for future easing helps buffer the economy against potential unexpected shocks or external headwinds. The move reinforces the structural drivers of a “higher-for-longer” growth trajectory, spanning investment, credit, and consumption,” he said.