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

Noting that since the October Policy, the Indian economy has witnessed rapid disinflation, Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday (December 5, 2025) announced that the Monetary Policy Committee (MPC) has voted unanimously to cut repo rate by 25 basis points to 5.25%.

The MPC also decided to continue with the neutral stance.

“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. On the other hand, real GDP growth accelerated 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,” Mr. Malhotra said in his address.

Inflation at a benign 2.2% and growth at 8%, for the first half of this year presents a rare goldilocks period, Mr. Malhotra added. While stating that globally, contrary to earlier expectations, growth has been relatively strong, he said that evolving geopolitical and trade environments, however, continue to weigh on the outlook. “Inflation paths remain divergent with headline inflation remaining above target in most advanced economies, while pressures in most emerging markets are contained, providing room for accommodative monetary policy.”

The Governor noted that conflicting pulls and pressures from AI-fuelled optimism and concerns over high valuations are playing out in global equity markets, while divergence in the monetary policy trajectory of central banks is adding to the uncertainty on capital flows and yield spreads.

Taking various factors into account, real GDP for 2025-26 is projected at 7.3% which is 0.5% more than the earlier projection. CPI inflation for 2025-26 is now projected at 2% which is 0.6% downwards from the earlier projection, the Governor said.

Apart from cutting the repo rate, the RBI in view of the evolving liquidity conditions and the outlook, has decided to conduct OMO purchases of government securities of ₹1,00,000 crore and a 3-year USD/INR Buy Sell swap of $5 billion this month to inject durable liquidity into the system.

Based on the recommendation of the MPC, the RBI reduced the repo rate by 25 bps each in February and April, and 50 basis points in June amidst easing retail inflation.

The retail inflation is trending below 4% since February this year. It eased to historic low in October, aided by an easing of food prices and favourable base effect.

(With PTI inputs)