RBI Reduces Repo Rate to 5.25% Amidst Strong Economic Growth and Low Inflation

Mumbai, December 5, 2025 - In a move to further bolster the Indian economy, the Reserve Bank of India (RBI) has announced a reduction in the repo rate by 25 basis points, bringing it down to 5.25%. The decision, made by the Monetary Policy Committee (MPC) following a three-day meeting from December 3 to 5, reflects the central bank's commitment to supporting growth in an environment of surprisingly low inflation and robust economic performance.

RBI Governor Sanjay Malhotra, after the conclusion of the MPC meeting, stated that the committee unanimously voted to reduce the policy repo rate with immediate effect after a thorough evaluation of the evolving macroeconomic conditions and outlook. The MPC also decided to maintain a neutral stance.

This decision comes against the backdrop of strong macroeconomic indicators, most notably the GDP growth of 8.2% in the second quarter of the current financial year and exceptionally low retail inflation. Data from the Ministry of Statistics and Programme Implementation (MoSPI) indicates that India's retail inflation fell sharply to a record low of 0.25% in October 2025.

The rate cut is expected to inject further liquidity into the financial system, encouraging investment and consumption. This move marks a significant shift from the RBI's previous policy announcement on October 1, where the repo rate was held steady at 5.5%.

Since February, the RBI has cumulatively reduced the repo rate by 125 bps. The central bank had paused rate changes in August and October.

The MPC's decision to reduce the repo rate was influenced by a significant drop in inflation and a promising growth outlook. The RBI has revised its FY26 GDP growth estimates upwards to 7.3% from the previous 6.8% and has reduced the CPI inflation forecast for FY26 to 2% from 2.6%.

Furthermore, the RBI plans to conduct open market operations (OMO) of ₹1 lakh crore and will also execute a three-year dollar–rupee buy-sell swap of $5 billion in December.

The rupee experienced a slight decline following the RBI's rate cut announcement, trading at 89.8450, down from 89.7850 before the decision.

The rate cut has been largely welcomed by the market, with the Sensex jumping 200 points and the Nifty surpassing 26,050 following the announcement. Market analysts believe that the lower repo rate will benefit sectors such as banking, auto, and real estate.