The Reserve Bank of India (RBI) has announced a significant monetary policy decision that is set to impact millions of Indians across the country. In its December 2025 meeting, the RBI’s Monetary Policy Committee (MPC) has cut the policy repo rate by 25 basis points to 5.25%, marking the third rate cut of the year.
Under the leadership of RBI Governor Sanjay Malhotra, this decision comes as welcome news for borrowers struggling with high interest rates on home loans, car loans, and other credit facilities. The repo rate, often considered the backbone of India’s monetary policy, plays a crucial role in determining the lending and borrowing rates for the entire banking system.
Why Did RBI Cut Repo Rate?
The RBI has slashed the repo rate to support economic growth and maintain inflation at manageable levels. The central bank has also revised its GDP growth forecast for FY2025-26 upward to 7.3%, reflecting confidence in India’s economic trajectory. With inflation at a comfortable 2.2%, the RBI has sufficient room to focus on growth.
Impact on Borrowers
This rate cut is expected to provide relief to millions of Indians. Banks are likely to reduce their lending rates, which means cheaper home loans, vehicle loans, and business credit. If you have a floating-rate loan, your monthly EMI (Equated Monthly Installment) is likely to decrease in the coming weeks as banks pass on the rate cuts.
What This Means for Savers
While borrowers celebrate, savers may see a decline in fixed deposit rates. Banks typically lower their FD rates when the RBI cuts the repo rate. However, this also means better opportunities for refinancing existing debt at lower rates.
The Path Ahead
The RBI has cut the repo rate by a total of 100 basis points during 2025-26, bringing it down from 6.25% to 5.25% in three installments of 25, 50, and 25 basis points respectively. Market analysts suggest there could be room for one more rate cut of 25 basis points later this financial year, potentially taking the rate to 5%.
Conclusion
The RBI’s decision to cut the repo rate by 25 basis points to 5.25% is a positive development for India’s economy. It demonstrates the central bank’s commitment to supporting growth while maintaining price stability. Whether you’re a borrower looking to reduce your loan burden or an investor seeking better returns, this monetary policy shift will have tangible implications for your financial planning.
Stay updated with the latest economic developments affecting your finances. The RBI’s proactive stance on monetary policy is crucial for sustaining India’s growth momentum in the coming quarters.
