The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), which met from December 3–5, 2025, announced a 25 basis point (bps) cut in the policy repo rate to 5.25% on December 5–6, 2025 — effective immediately. Five of the six MPC members voted to maintain the 'neutral' policy stance, preserving flexibility to respond to future economic conditions. The rate cut brings the total reduction in 2025 to 125 basis points over four consecutive MPC meetings, marking the RBI's most aggressive easing cycle since 2019. The decision was taken against the backdrop of exceptionally favourable macroeconomic conditions: headline inflation fell to a record low of 2.2%, well below the RBI's 4% target (with a ±2% band), while GDP growth remained robust at approximately 8% for the first half of FY2025–26 — with the July–September 2025 quarter registering 8.2% growth. RBI Governor Sanjay Malhotra described this as a 'rare Goldilocks period' — where both inflation and interest rate conditions are simultaneously favourable for sustained growth. Consequential rate changes: Standing Deposit Facility (SDF) adjusted to 5.00%; Marginal Standing Facility (MSF) and Bank Rate revised to 5.50%. The MPC noted that the benign inflation was driven by a strong kharif harvest, easing global commodity prices, and restrained domestic demand-side pressures. The repo rate cut is expected to transmit to lower EMIs on home loans, vehicle loans, and personal credit — benefiting households across India. In Rajasthan, the cut is expected to boost the Jaipur Real Estate and MSME sectors, particularly benefiting artisan clusters in Jodhpur and Jaipur through reduced credit costs under MUDRA and PM Vishwakarma loan schemes. The rate cut also signals confidence in India's fiscal consolidation path and RBI's projection that India will remain one of the fastest-growing major economies in 2025–26.
RBI Monetary Policy Committee Cuts Repo Rate by 25 bps to 5.25% on December 5–6, 2025: 'Goldilocks' Economy, Inflation at 2.2%, GDP at 8%
The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC), which met from December 3–5, 2025, announced a 25 basis point (bps) cut in the policy repo rate to 5.25% on December 5–6, 2025 — effective immediately. Five of the six MPC members voted to maintain the 'neutral' policy stance, preserving flexibility to respond to future economic conditions. The rate cut brings the total reduction in 2025 to 125 basis points over four consecutive MPC meetings, marking the RBI's most aggressive easing cycle since 2019. The decision was taken against the backdrop of exceptionally favourable macroeconomic conditions: headline inflation fell to a record low of 2.2%, well below the RBI's 4% target (with a ±2% band), while GDP growth remained robust at approximately 8% for the first half of FY2025–26 — with the July–September 2025 quarter registering 8.2% growth. RBI Governor Sanjay Malhotra described this as a 'rare Goldilocks period' — where both inflation and interest rate conditions are simultaneously favourable for sustained growth. Consequential rate changes: Standing Deposit Facility (SDF) adjusted to 5.00%; Marginal Standing Facility (MSF) and Bank Rate revised to 5.50%. The MPC noted that the benign inflation was driven by a strong kharif harvest, easing global commodity prices, and restrained domestic demand-side pressures. The repo rate cut is expected to transmit to lower EMIs on home loans, vehicle loans, and personal credit — benefiting households across India. In Rajasthan, the cut is expected to boost the Jaipur Real Estate and MSME sectors, particularly benefiting artisan clusters in Jodhpur and Jaipur through reduced credit costs under MUDRA and PM Vishwakarma loan schemes. The rate cut also signals confidence in India's fiscal consolidation path and RBI's projection that India will remain one of the fastest-growing major economies in 2025–26.
Key facts
- RBI MPC cut the repo rate by 25 bps to 5.25% on December 5-6 in a unanimous decision.
- Total reduction in 2025 reached 125 bps over four consecutive meetings since February.
- Headline inflation fell to a record low of 2.2% while GDP growth remained robust at 8%.
- RBI Governor Sanjay Malhotra described this as a 'rare Goldilocks period' for the economy.
- The SDF was adjusted to 5.00% and MSF and Bank Rate revised to 5.50%.
- The rate cut benefits households through lower EMIs on home, vehicle, and personal loans.
PYQPrelims/PYQ angle
- RAS 2023 RBI inflation targeting framework — This PYQ directly asks about the RBI inflation targeting framework, which is the exact mechanism under which the MPC cut the repo rate to 5.25%.
Mains angle
Q: Analyse the RBI's decision to cut the repo rate by 25 bps to 5.25% in December 2025 against the backdrop of 2.2% inflation and 8% GDP growth, and its implications for the economy.
Answer (50 words):
The RBI's MPC cut the repo rate by 25 bps to 5.25% on December 5, 2025, completing 125 bps cumulative easing across four meetings. With inflation at record-low 2.2% and GDP growth at 8%, Governor Malhotra termed it a rare Goldilocks period enabling lower EMIs on home and vehicle loans.
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What was the repo rate after the RBI MPC cut in December 2025?
RBI MPC cut repo rate by 25 bps to 5.25% in December 2025.
Source: RBI MPC Statement / ICRA / SCC Online / Bajaj Finserv / DD News / HDFC Mutual Fund / Axis MF / Outlo
Frequently asked questions
What repo rate did the RBI MPC set at its December 2025 meeting and by how many basis points was it cut?
The RBI Monetary Policy Committee cut the policy repo rate by 25 basis points (bps) to 5.25% at its December 5–6, 2025 meeting. The decision was unanimous, with all six members voting in favour.
What was the total repo rate reduction in 2025 and over how many meetings did it occur?
The total reduction in the repo rate during 2025 was 125 basis points, spread over four consecutive MPC meetings beginning in February 2025. This was described as the RBI's most aggressive easing cycle since 2019.
What did RBI Governor Sanjay Malhotra mean by a 'Goldilocks period' for the economy?
RBI Governor Sanjay Malhotra used the term 'Goldilocks period' to describe an exceptionally favourable macroeconomic environment in December 2025 — where inflation was low at 2.2% (not too hot), GDP growth was robust at 8% (not too cold), and conditions were 'just right' to justify an accommodative monetary policy stance.
How were the SDF, MSF, and Bank Rate adjusted alongside the repo rate cut?
Following the repo rate cut to 5.25%, the Standing Deposit Facility (SDF) was adjusted to 5.00% and the Marginal Standing Facility (MSF) and Bank Rate were revised to 5.50%. These rates form the corridor around the repo rate.
How does a repo rate cut benefit ordinary households?
A lower repo rate reduces borrowing costs for commercial banks, which typically pass on the benefit to customers through lower interest rates on home loans, vehicle loans, and personal loans — thereby reducing monthly EMI payments and increasing household disposable income.
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