RBI Repo Rate Cut to 5.25% on December 5, 2025: Impact on EMIs, Growth, Inflation and Markets

The Reserve Bank of India has cut the repo rate by 25 bps to 5.25% on December 5, 2025, extending this year’s aggressive easing cycle. Here’s what it means for borrowers, savers, markets and the interest‑rate outlook for 2026.

Snapshot: What Happened in the December 5, 2025 RBI Policy?

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has cut the repo rate by 25 basis points to 5.25% at its December 3–5 meeting. This takes total cuts in 2025 to 125 bps, the sharpest easing cycle since 2019. ^[1]

Key highlights from today’s policy and related announcements:

Policy repo rate: Cut from 5.50% to 5.25%
Policy stance: Neutral, with the RBI keeping the door open for more easing
Corridor rates:
- Standing Deposit Facility (SDF): 5.00%
- Marginal Standing Facility (MSF) & Bank Rate: 5.50% ^[2]
Liquidity boost:
- Open Market Operations (OMOs) to buy ₹1 trillion of government bonds in December
- A $5 billion dollar–rupee FX swap to inject rupee liquidity
- Combined, these steps can add up to roughly $16 billion into the banking system ^[3]
Growth and inflation forecasts (FY2025–26 / “FY26”):
- Real GDP growth forecast raised to 7.3% (from 6.8%)
- CPI inflation forecast cut to 2% (from 2.6%), the bottom of the RBI’s 2–6% tolerance band ^[4]
Macro backdrop:
- Retail inflation hit an all‑time low of around 0.25% in October 2025
- The economy grew 8.2% in the July–September quarter, one of the strongest prints in recent years ^[5]
Governor’s message: RBI Governor Sanjay Malhotra described the current phase as a “rare Goldilocks period” – strong growth with exceptionally low inflation – and said policy has “space” to support growth as long as inflation stays benign. ^[6]

In short, the RBI is cutting rates not because growth is weak, but because inflation has collapsed, giving it room to lend extra support to the economy in a difficult global environment.

What Is the Repo Rate in India – and Why Does It Matter?

The repo rate is the interest rate at which the RBI lends short‑term funds to banks and other financial institutions, against government securities as collateral. Think of it as the “wholesale” cost of money for the banking system. ^[7]

When the RBI:

Cuts the repo rate → banks can borrow more cheaply → over time they reduce lending rates on home, auto and personal loans → EMIs tend to fall and credit demand rises.
Raises the repo rate → bank funding becomes more expensive → lending rates and EMIs rise → demand cools → inflation is contained.

Since most new retail loans in India are repo‑linked or benchmark‑linked, changes in the repo rate are now passed on faster to borrowers than a few years ago. ^[8]

Inside the December 5, 2025 RBI Repo Rate Decision

1. Policy rate and stance

The six‑member MPC unanimously voted to cut the repo rate by 25 bps to 5.25% and maintained a neutral stance, signalling that future moves could go either way depending on incoming data. ^[9]

A neutral stance, combined with a cut, means the RBI is not pre‑committing to a long easing cycle, but it is comfortable using the room created by ultra‑low inflation to support growth.

2. Liquidity measures: Going beyond the policy rate

Alongside the rate cut, the RBI announced a substantial liquidity package: ^[10]

₹1 trillion of bond purchases via OMOs in December
A $5 billion, three‑year dollar–rupee swap to inject rupee liquidity
Emphasis on keeping financial conditions easy to help transmit the rate cuts into actual lower borrowing costs.

These moves support the bond market, lower yields along the curve and reassure banks that sufficient liquidity will be available as rates drift lower.

3. Growth and inflation outlook

The RBI’s updated projections paint an unusually benign picture: ^[11]

GDP growth:
- FY26 growth raised to 7.3% (from 6.8%)
- Around 7% expected in Q3 and 6.5% in Q4
Inflation:
- FY26 CPI inflation cut to 2% (from 2.6%)
- Headline inflation was 0.25% in October, far below the 4% target, driven by deep declines in food prices and GST cuts lifting the base effect.

In other words, inflation has stopped being the binding constraint on policy – at least for now.

Why Cut Rates When Growth Is Already Strong?

This is the main puzzle analysts have debated all day: why ease policy in the middle of a boom?

1. A genuine “Goldilocks” moment

The RBI and several commentators describe today’s environment as a “Goldilocks” economy – not too hot on prices, not too cold on growth. ^[12]

Growth above 8% in the first half of FY26
Inflation at record lows, with underlying “core” inflation estimated around 3–3.5%

The central bank argues this rare configuration creates “policy space”: it can gently support demand without stoking inflationary pressures.

2. External headwinds: US tariffs and a weak rupee

The decision also has a strong risk‑management flavour. Several articles highlight that: ^[13]

The US has imposed steep tariffs on Indian goods, hurting exports and some labour‑intensive industries.
The rupee recently hit a record low around ₹90.4 per dollar, making it one of Asia’s worst‑performing currencies this year. ^[14]

Governor Malhotra has repeatedly stressed that India is still a domestic‑demand‑driven economy, and that the impact of tariffs is currently “limited”, but the risks are real. ^[15]

Against that backdrop, the rate cut and liquidity measures are designed to shore up domestic demand, give a cushion to interest‑sensitive sectors like housing and autos, and keep financial conditions supportive if global growth slows further.

3. Disinflation is broad‑based, not a fluke

Economic Times analysis points out that the disinflation of 2025 is broad‑based – not just a one‑off due to vegetables. Food, core components and the effect of GST cuts have all helped push inflation down to levels “not seen since the adoption of flexible inflation‑targeting”. ^[16]

That gives the MPC confidence that it isn’t easing into an inflation spike.

Repo Rate History and the 2025 Easing Cycle

To understand how significant today’s move is, it helps to see it in context.

1. Repo rate levels since late 2024

Based on RBI history collated by Reuters and updated trackers: ^[17]

6.50% – December 6, 2024
6.25% – February 7, 2025
6.00% – April 9, 2025
5.50% – June 6, 2025
5.50% – August 6, 2025 (no change)
5.50% – October 1, 2025 (no change)
5.25% – December 5, 2025

That’s 125 bps of cuts in 2025, after rates had peaked in the post‑pandemic tightening cycle.

Over a longer horizon, the repo rate: ^[18]

Reached highs near 16% in the early 2000s
Fell to a low of 4% during the COVID‑19 pandemic in 2020

Today’s 5.25% places policy firmly in “supportive but not ultra‑loose” territory.

How Markets Reacted to the Repo Rate Cut

Equities

Indian stock indices welcomed the decision:

Nifty 50 closed around 26,186, up about 0.6%
Sensex ended near 85,712, up about 0.5% ^[19]

The rate‑sensitive sectors did well:

Financials, autos and real estate indices all gained, reflecting expectations of cheaper credit and stronger loan demand. ^[20]

Bonds

Government bond yields initially fell:

The 10‑year benchmark yield dipped by nearly 5 bps after the announcement, before stabilising near 6.48%, as markets digested the mix of a rate cut and heavy OMO purchases. ^[21]

Lower yields are good news for future borrowing costs of the government and, indirectly, for corporate issuers and mortgage rates.

Rupee

The rupee remained under pressure but did not spiral:

It traded close to 89.9 per dollar by the end of the day after briefly weakening post‑policy. ^[22]
Malhotra reiterated that the RBI does not target a specific exchange rate, intervening only to curb excessive volatility – a stance consistent with recent limited FX operations despite the rupee’s slide. ^[23]

What the Repo Rate Cut Means for Your EMIs and Deposits

1. Home loan EMIs

If you’re a home loan borrower with a floating‑rate loan linked to the repo rate, this decision is positive.

Mint’s calculations show that after the cumulative 125 bps reduction in 2025, the EMI on a ₹50 lakh home loan taken at 9% for 15–20 years at the start of 2025 falls by thousands of rupees per month – from around ₹54,700 to about ₹47,000 in one stylised example. ^[24]
Many banks will now begin to revise repo‑linked rates downward, though the timing varies by lender’s reset schedule.

Who benefits first?

Floating‑rate borrowers – particularly those on external benchmark (repo‑linked) loans – tend to see changes within a few months as their reset dates come up.
New borrowers may see lower advertised home loan rates almost immediately as banks compete for business.

Fixed‑rate loans (still common in some personal and auto loans) usually do not change with repo movements until you refinance.

2. Auto and personal loans

Many new auto and personal loans are also linked, directly or indirectly, to external benchmarks. Over time, interest rates on these products should soften, reducing EMIs for new borrowers and sometimes for existing floating‑rate customers. ^[25]

3. Deposit rates and savers

The flip side of cheaper loans is lower deposit returns:

Banks facing lower lending rates and abundant liquidity often cut fixed deposit (FD) and savings rates with a lag.
ClearTax and other trackers already show banks trimming FD rates after earlier cuts this year, and more reductions are likely if liquidity remains ample. ^[26]

For retirees and conservative savers, this may push more money towards longer‑tenure FDs, government small‑savings schemes, or debt mutual funds that can benefit from falling yields.

4. Real estate and rate‑sensitive sectors

Industry commentary from real‑estate firms suggests: ^[27]

Lower home loan rates are expected to support affordable and mid‑income housing, where EMIs are a key constraint.
Developers see the cut as helping sustain sales momentum after some recent softening in volumes.

Autos, NBFCs and rate‑sensitive stocks are expected to benefit from stronger credit demand and lower funding costs.

How Do Economists and Markets See the Path of the Repo Rate Now?

1. What economists expected before today

A Reuters poll of 80 economists conducted in late November found that: ^[28]

Around 62 out of 80 expected today’s cut, taking the repo rate to 5.25%
A clear majority believed rates would remain at that level through end‑2026

So the cut itself was widely anticipated, but views differ on whether the RBI will do more.

2. Fresh views after the decision

Today’s decision – and the RBI’s guidance – has triggered a new round of forecasts:

The Reuters policy story notes that several economists now see scope for another 25 bps cut, with some expecting a terminal repo rate around 5.0% if inflation stays near 2%. ^[29]
One economist at Bank of Baroda, quoted in the Financial Express live blog, expects a high probability of another cut in February 2026, taking the repo rate to 5.0% and ending this easing cycle. ^[30]
Analysts cited by NDTV and others had long argued that policy space for cuts was limited to another 25–50 bps, with a likely terminal range of 5.0–5.25% – exactly where today’s move has taken us. ^[31]
Kotak Mahindra Bank’s chief economist and other strategists quoted by Reuters suggest one more cut is possible, followed by a prolonged pause as long as inflation remains benign and growth doesn’t collapse. ^[32]

3. The RBI’s own tone: cautious optimism

Governor Malhotra has tried to avoid committing to a clear path:

He emphasised that the priority now is transmission of past cuts – making sure banks actually pass on lower rates – before deciding on further easing. ^[33]
RBI officials also admitted that while 8% growth is “within reach,” momentum is likely to moderate as base effects fade and global trade remains weak. ^[34]

Bottom line on outlook:
Markets currently price in one more small cut at most, with a growing chance that 5.25% will be the floor if inflation edges back up towards the 4% target in 2026.

Key Risks to the Repo Rate and Economic Outlook

Even in a Goldilocks phase, there are risks policymakers and investors are watching closely:

Tariffs and global growth
- A prolonged US–India tariff standoff could hurt exports, jobs in MSMEs and overall growth, potentially forcing the RBI to use what little easing room is left. ^[35]
Currency volatility
- A much weaker rupee could eventually import inflation via costlier fuel and inputs, limiting the RBI’s ability to keep rates low.
Food inflation shocks
- India’s inflation story is often made or broken by monsoons and food prices. A poor crop season could reverse today’s disinflation.
Transmission gaps
- If banks do not pass on lower rates fully – or respond slowly – the boost to growth may be smaller than expected, while savers still suffer from lower yields.

FAQs on Repo Rate in India After the December 2025 Policy

1. What is the current repo rate in India?

As of December 5, 2025, the RBI’s repo rate is 5.25%, after a 25 bps cut at the December MPC meeting. ^[36]

2. How many times has the RBI cut rates in 2025?

In 2025, the RBI has cut the repo rate a total of 125 basis points, in several steps: February, April, June and now December – making it the most aggressive easing since 2019. ^[37]

3. Will my home loan EMI go down immediately?

If your home loan is floating and repo‑linked, your EMI should start falling from your next reset date, which could be monthly, quarterly or annually depending on your loan agreement.
For fixed‑rate loans, the EMI usually does not change unless you refinance into a lower‑rate product. ^[38]

4. How does a repo rate cut affect FD and savings rates?

Over time, FD and savings rates tend to come down when repo rates and bank lending rates fall, especially if liquidity is ample.
Banks have already started trimming some FD rates following earlier cuts this year, and more reductions are likely if the easing cycle continues. ^[39]

5. Will the RBI cut the repo rate again in 2026?

No one can say for sure, but:

A majority of economists surveyed before the decision expected 5.25% to be the floor, with rates staying there through 2026. ^[40]
A minority – including some bank economists – see room for one more 25 bps cut in early 2026 if inflation stays around 2% and growth slows. ^[41]

The RBI has left itself flexible, stressing that future action depends on data.

The Bottom Line

India’s repo rate at 5.25% marks the culmination (or near‑culmination) of a powerful easing cycle powered by record‑low inflation and robust growth. For households and businesses, the message is simple:

Borrowers can look forward to cheaper loans and lower EMIs over the coming months.
Savers may need to hunt harder for yield as deposit rates drift down.
Markets see the move as supportive, but are already debating whether this is the last cut before a long pause.

In a world of noisy global politics and fragile trade, the RBI is trying to lock in a rare Goldilocks window – supporting growth now, while it still can, without losing sight of long‑term price stability.