RBI Cuts Repo Rate by 25 bps to 5.25%, Signaling Cheaper Loans and Lower EMIs
RBI cuts repo rate to 5.25 percent, making loans cheaper and EMIs lighter for borrowers.
On December 5, 2025, Reserve Bank of India (RBI) Governor Sanjay Malhotra announced a 25 basis point cut in the repo rate, reducing it from 5.50 percent to 5.25 percent. The decision was taken after the Monetary Policy Committee (MPC) meeting earlier this week, is expected to make loans more affordable for households and businesses and give a fresh push to spending and investment
The repo rate is the interest rate at which RBI lends money to commercial banks. When this rate is lowered, banks can borrow funds at a cheaper cost. In turn, they usually pass on the benefit to customers by reducing lending rates on home loans, car loans, and personal loans. For borrowers with floating-rate loans, monthly installments or EMIs are likely to come down in the coming months.
The RBI explained that inflation has fallen sharply in recent months. In October 2025, consumer price inflation dropped to just 0.3 percent, well below the lower limit of its target range. At the same time, India’s economy grew strongly, with GDP rising by 8.2 percent in the second quarter of the financial year.
This rare combination of high growth and low inflation gave the central bank room to cut rates and support further expansion.
RBI also announced open market purchases of government securities worth one lakh crore rupees and a three-year USD/INR swap of five billion dollars to ensure enough liquidity in the banking system. These steps will provide banks with more funds to lend and help smoothen monetary transmission.
The RBI Governor said that the outlook for growth remains positive, supported by strong domestic demand, healthy investment activity, and robust services exports. Inflation is expected to stay below or close to the 4 percent target in the coming year.
For ordinary citizens, the key takeaway is that borrowing costs are set to ease. Homebuyers and businesses planning new investments may find this an attractive time to take loans. Buyers are advised to consider their financial stability and long-term repayment capacity before making big decisions.
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