RBI Cuts Repo Rate to 5.25% Amid ‘Goldilocks’ Economy: How the December 2025 Policy Will Hit EMIs, Rupee and Markets

Mumbai | December 5, 2025 — The Reserve Bank of India (RBI) has delivered a widely anticipated 25 basis point cut in the policy repo rate, bringing it down from 5.50% to 5.25% after its Monetary Policy Committee (MPC) meeting on Friday. All six MPC members voted in favour of the reduction, while keeping the monetary policy stance “neutral”. ^[1]

With this move, the RBI has now lowered the repo rate by a cumulative 125 basis points since February 2025, even as it grapples with a record-weak rupee and robust economic growth. ^[2]

RBI December 2025 Policy at a Glance

Here are the headline decisions from the December 5, 2025 policy:

Repo rate: Cut by 25 bps to 5.25% from 5.50%
Standing Deposit Facility (SDF): Reduced to 5.0%
Marginal Standing Facility (MSF) & Bank Rate: Set at 5.5% ^[3]
Policy stance: Neutral (no shift to explicit “accommodative” guidance) ^[4]
Liquidity support:
- Open Market Operations (OMO) purchases of ₹1 lakh crore in government bonds in December
- A three‑year $5 billion dollar–rupee buy–sell swap to inject durable forex liquidity ^[5]

The RBI framed the decision as a growth-supportive step enabled by exceptionally low inflation, while stressing that the stance remains neutral and data-dependent.

Why the RBI Cut Rates Despite a Record-Weak Rupee

The December decision came in a tricky backdrop:

The rupee breached the ₹90 per dollar mark for the first time this week, falling to around 90.2–90.3 in the days leading up to the policy. ^[6]
On Friday morning, the currency briefly opened stronger near ₹89.85 ahead of the announcement, but live market coverage showed it slipping back past 90 after the rate cut headline hit screens. ^[7]

Ordinarily, such currency weakness might have argued for caution on further easing. Yet the RBI chose to focus on an extraordinary collapse in inflation and what it views as a rare sweet spot for the economy.

Governor Sanjay Malhotra described the current environment as a “rare Goldilocks period”, noting that inflation around the lower end of the target band and roughly 8% GDP growth in the first half of FY26 together create room to support growth without jeopardising price stability. ^[8]

In other words:

Weak rupee = concern,
Ultra‑low inflation + strong growth = big cushion.

The RBI is trying to use that cushion now, while also deploying FX swaps and bond purchases to ease pressure on both the rupee and domestic liquidity.

Goldilocks Mix: Record-Low Inflation, Upgraded Growth

Inflation: From Target Band to Below the Floor

The RBI’s mandate is to keep CPI inflation at 4%, with a tolerance band of 2–6%. ^[9]

Right now, it’s well below even the 2% floor:

October 2025 CPI inflation: around 0.25% year‑on‑year, the lowest on record and far below the lower tolerance band. ^[10]
The central bank attributes this to:
- Benign food prices,
- Better supply conditions,
- And earlier GST rate cuts that eased cost pressures in several categories. ^[11]

Reflecting this, the RBI has cut its inflation projection for FY2025–26 (FY26) to 2.0%, down from around 2.6% earlier. ^[12]

New CPI forecast path: ^[13]

Q3 FY26: 0.6%
Q4 FY26: 2.9%
Q1 FY27: 3.9%
Q2 FY27: 4.0%

The message from Mint Street is clear:

Inflation is not just under control — it is unusually low, and expected to stay comfortably within the target band for several quarters.

Growth: Stronger‑Than‑Expected Momentum

On the growth side, the RBI sees an economy that is still running hot:

Q2 FY26 (July–September 2025) GDP grew 8.2%, beating expectations and marking the strongest pace in six quarters. ^[14]
GDP growth in the first half of FY26 is estimated at around 8%. ^[15]

Given the positive surprise, the central bank has raised its real GDP growth forecast for FY26 to 7.3% from 6.8%. ^[16]

New growth projections: ^[17]

Q3 FY26: 7.0%
Q4 FY26: 6.5%
Q1 FY27: 6.7%
Q2 FY27: 6.8%

Governor Malhotra emphasised that despite global headwinds and trade uncertainties, India has displayed “remarkable resilience” and retains strong upside potential, especially if ongoing trade and investment agreements are concluded successfully. ^[18]

What the Repo Rate Cut Means for EMIs and Borrowers

The immediate question for most households is simple: will my EMI fall?

While banks usually take a few weeks to adjust lending rates, the direction of travel is clear:

With the repo rate now at 5.25%, the cost of funds for banks tends to decline, especially for loans pegged to external benchmarks such as the repo-linked lending rate (RLLR).
Housing finance experts expect lower home-loan and auto-loan EMIs, particularly for borrowers on floating-rate loans. ^[19]

One lending industry executive quoted in policy-day coverage noted that a December cut “would provide meaningful relief to borrowers — particularly those servicing big-ticket loans such as home and auto loans — and help stimulate demand across consumption and investment-heavy sectors.” ^[20]

In plain terms:

Home loans: Banks are likely to trim interest rates if they pass on the full 25 bps — a ₹50 lakh loan over 20 years could see EMIs fall by a few hundred rupees per month, depending on the bank’s spread.
Auto and personal loans: New borrowers may see slightly better rates; existing floating-rate customers could also benefit as their resets come up.
Credit cards & unsecured credit: These are less directly linked to repo moves and may change more slowly, if at all.

However, the RBI is also mindful of bank margins. Analysts had warned ahead of the meeting that repeated cuts could compress net interest margins, though the impact is partly offset by the sharp fall in deposit rates over the year. ^[21]

Impact on Savers: FD and Deposit Rates May Drift Lower

The flip side of cheaper loans is usually lower returns on deposits:

Over 2025, banks have already reduced many term-deposit rates in line with earlier 100 bps of repo cuts. ^[22]
With another 25 bps cut, FD rates may edge down further, especially at the shorter end, as banks reassess their cost of funds.

For savers, that means:

Senior citizens and conservative investors relying on bank FDs may need to hunt for slightly higher rates from smaller banks, NBFCs, or consider debt mutual funds (with appropriate risk analysis).
The RBI’s own commentary makes it clear that supporting growth is the priority as long as inflation stays very low — which naturally implies a softer interest-rate environment for savers. ^[23]

Liquidity Boost: OMOs and the $5 Billion Forex Swap

This policy is not just about the repo rate; it’s also about liquidity plumbing.

To ensure that lower policy rates translate into lower market rates and to ease pressures on the rupee, the RBI unveiled two major measures: ^[24]

₹1 lakh crore OMO bond purchases
- The RBI will buy government securities in December, pumping durable rupee liquidity into the banking system.
- This tends to pull down bond yields, helping the government’s borrowing programme and reducing funding costs for corporates linked to the sovereign curve. ^[25]
$5 billion three-year dollar–rupee swap
- The central bank will conduct a buy–sell swap in the FX market, injecting dollars initially while absorbing them later, effectively releasing rupee liquidity now.
- This tool also helps manage volatility in the rupee without resorting to blunt, one-way intervention in the spot market. ^[26]

Together, these steps signal that the RBI wants:

Easy rupee liquidity,
Smooth transmission of the rate cut, and
A backstop for the FX market at a time when the rupee has just tested record lows.

Rupee, Bonds and Equities: How Markets Reacted on Policy Day

Rupee

After hitting all-time lows below ₹90.25 per dollar earlier in the week, the rupee came into the policy on edge. ^[27]
It opened slightly stronger on Friday (around ₹89.85), but coverage shortly after the announcement reported that the rupee slipped back past 90 as traders digested the rate cut. ^[28]

The combination of a rate cut and liquidity infusion is mildly rupee‑negative in the short term, but the RBI is betting that:

Low inflation,
Strong growth, and
Credible communication about its FX toolkit

will keep expectations anchored.

Bond Market

The 10-year government bond yield was hovering near 6.5% before the announcement, with traders keenly focused on the inflation forecast and any OMO hints. ^[29]
The announced rate cut plus ₹1 lakh crore in OMO purchases are broadly bullish for bonds, and analysts expect yields to ease as the RBI starts buying securities in December.

Equity Market

Equities took the decision as a positive, especially for rate‑sensitive pockets:

Real estate, auto and financial stocks outperformed after the MPC decision, with the Nifty Realty index climbing over 1% during the morning session. ^[30]
Policy-day live blogs also reported a generally positive bias in banking and financial services indices, aided by the growth upgrade and strong GDP data. ^[31]

For Dalal Street, the combination of lower rates + higher growth forecast is an appealing one — even if a weak rupee remains a lingering concern for imported inflation and corporate margins.

Will the RBI Cut Rates Again in 2026?

One of the biggest questions now is whether 5.25% is the terminal rate, or if the MPC will squeeze in one more cut.

The RBI has deliberately kept its stance neutral, signalling flexibility rather than a pre‑set easing cycle. ^[32]
A Reuters commentary compiled after the policy noted that with inflation extremely low and liquidity measures in place, some economists still see room for another 25 bps cut to 5.0%, followed by a prolonged pause through 2026. ^[33]

Key factors that will shape the next move:

Inflation trajectory
- If CPI starts moving decisively back toward 4% sooner than expected — especially due to food or imported inflation from the weak rupee — the RBI may prefer to hold at 5.25%. ^[34]
Growth sustainability
- With Q2 growth at 8.2% and FY26 projected at 7.3%, a sharper‑than‑expected slowdown could reopen the debate for further easing. ^[35]
Global backdrop
- Upcoming decisions by the US Federal Reserve and developments in oil prices, trade frictions, and geopolitical tensions will all influence the RBI’s room for manoeuvre. ^[36]

For now, the signal is:

One foot on the accelerator, but both eyes firmly on the rear‑view mirror of inflation and the side‑mirror of the rupee.

Sectoral Winners and Losers from the December Rate Cut

Likely Winners

Real Estate & Housing Finance
- Lower mortgage rates and supportive commentary from industry participants suggest a boost for residential demand, particularly in mid‑income and affordable segments. ^[37]
Autos and Consumer Durables
- EMIs for cars, two‑wheelers and high‑ticket consumer goods could become more attractive, supporting demand during the next consumption cycle.
Banks & NBFCs (selectively)
- While margins may compress slightly, better credit growth, lower delinquencies in a strong growth environment, and gains in treasury portfolios from lower bond yields can cushion the impact. ^[38]

Potential Losers

Interest‑sensitive savers
- As deposit and small savings rates drift lower, conservative savers face reinvestment risk and lower real returns.
Import‑dependent industries
- If the rupee remains weak, sectors heavily reliant on imported raw materials (like certain chemicals, electronics, and oil marketing companies) could see margins squeezed — partly offsetting the benefit of lower domestic borrowing costs. ^[39]

Quick FAQ: RBI Repo Rate Cut – December 5, 2025

1. What is the new RBI repo rate after the December 2025 policy?
The repo rate is now 5.25%, down from 5.50% after a 25 basis point cut. ^[40]

2. How much has the RBI cut rates in 2025 so far?
Since February 2025, the RBI has reduced the repo rate by a cumulative 125 basis points, with earlier moves in the first half of the year and the latest cut on December 5. ^[41]

3. Will my home loan EMI definitely go down?
Most floating-rate home loans linked to the repo or external benchmarks should see some reduction in EMIs once banks pass on the cut. The timing and extent will vary by lender. ^[42]

4. Why did the RBI cut rates when the rupee is so weak?
Because inflation has plunged to record lows (around 0.25% in October) and is projected at just 2% for FY26, while growth remains strong near 7–8%. The RBI judged that the inflation cushion is large enough to support growth even with a soft currency. ^[43]

5. Could there be more rate cuts in 2026?
Yes, some economists still see room for one more 25 bps cut to 5.0%, but the RBI has kept its stance neutral and will decide based on incoming inflation, growth and rupee data. ^[44]