Taking a dovish stance, the Reserve Bank of India (RBI) cut the repo rate by 25 basis points to 5.25% on December 5, 2025 – its fourth cut in 2025 – which was unanimously approved by the six-member Monetary Policy Committee (MPC) after a three-day review (December 3-5). Governor Sanjay Malhotra in his post-policy briefing emphasized the decision on the basis of strong growth and moderation in inflation: “After a detailed assessment of the changing macroeconomic conditions, the MPC unanimously decided to reduce the policy repo rate by 25 bps to 5.25%, effective immediately.” The stance on flexibilities remains ‘neutral’, with no changes in CRR, SLR, or other rates.
The easing comes after a pause in October 2025, when the MPC, after meetings on September 29-October 1, kept the rate at 5.5%, citing balanced risks despite a decline in inflation. Then, Malhotra had noted a “sharp decline” in prices but preferred caution on global volatility. The total cut of 125 bps since January signals a shift towards RBI growth support, consistent with a “rare Goldilocks” phase: Headline CPI fell to a record 0.25% in October – driven by -5.02% food deflation (vegetables -27.57%), GST cut, and base effect – well below the 4% target. Core inflation (except food/fuel) eased to 2.6% (except gold), FY26 estimate cut to 2% from 2.6%.
According to NSO data, Q2 FY26 GDP rose to a six-quarter high of 8.2% (vs 5.6% YoY), driven by manufacturing (9.1%) and services (9.2%) – better than the RBI forecast of 7%. H1 growth stood at 8.0%, raising FY26 estimate to 7.3% (Q3: 7.2%, Q4: 7.1%). External buffers shine: Forex reserves over $720B+, CAD 1.3% of GDP, Rupee at 89.85/USD (post-announcement).
To counter the liquidity crunch and pressure on the rupee, the RBI launched OMO purchases of ₹1 lakh crore and three-year rupee-dollar swaps of $5B – injecting sustainable funds without targeting yields. Malhotra dismissed rupee issues: “We let it find its right level; the external sector is comfortable.”
Markets cheer: Nifty up 0.17% at 26,078, Sensex +153 up at 85,423; Rupee strengthened by 13 paise. Benefit to borrowers: EMIs on EBLR loans worth ~₹50 lakh crore reduced, boosting consumption/housing. Economists are expecting another 25 bps cut in February, but Malhotra stressed the reliance on data amid US tariffs and oil volatility. This well-thought-out relief further strengthens the strength of India, which targets 7%+ growth in FY26 while keeping inflation under control.
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