RBI MPC 2025: Repo Rate Cut Makes Loans Cheaper – Here’s What Changed

New Delhi: The Reserve Bank of India (RBI) concluded its Monetary Policy Committee (MPC) meeting on Friday, announcing a key reduction in interest rates. The repo rate has been cut by 25 basis points, bringing it down from 5.5% to 5.25%. This move is expected to make home loans, car loans, personal loans, and other credit products cheaper for consumers.

The decision was taken unanimously by the six-member MPC. RBI Governor Sanjay Malhotra explained that the rate cut was warranted due to a sharp and unexpected decline in inflation and an economy performing stronger than expected. The MPC minutes will be released on 19 December 2025, and the next meeting is scheduled for 4–6 February 2026.

Strong Economic Indicators

RBI has upgraded India’s GDP growth forecast for FY26 to 7.3% from the earlier 6.8%, reflecting robust performance across sectors. Growth estimates for Q3 FY26 have been revised from 6.7% to 7.0%, and Q4 FY26 from 6.2% to 6.5%. For FY27, RBI expects 6.7% growth in Q1 and 6.8% in Q2.

Governor Malhotra highlighted strong domestic demand, with urban consumption healthy and rural demand steadily improving. Private investment is rising, while manufacturing and services sectors show good momentum. Agriculture is expected to remain stable due to favorable sowing conditions, adequate reservoir levels, and normal progress of the Rabi crop. Fiscal consolidation, targeted public investments, and GST efficiency gains are supporting the economy’s resilience.

Inflation at Historic Lows

Retail inflation in October 2025 fell to 0.25%, the lowest in years, even below the RBI’s target band. This drop was mainly due to a sharp decline in food prices, easing imported inflation pressures. Core inflation—excluding volatile items like precious metals—also continues to remain soft. Consequently, RBI has projected headline CPI inflation for FY26 at 2.0%:

• Q3 FY26: 0.6%
• Q4 FY26: 2.9%
• Q1 FY27: 3.0%
• Q2 FY27: 2.8%

Key Policy Decisions

• Repo rate: Reduced by 25 bps to 5.25%
• Standing Deposit Facility (SDF) rate: Reduced to 5.0%
• Marginal Standing Facility (MSF) & Bank Rate: Adjusted to 5.50%
• Policy stance: Maintained as ‘Neutral’

Understanding the Rates

• Repo Rate: The rate at which RBI lends to banks. A higher repo rate increases borrowing costs for banks, which is then passed on to consumers via higher loan interest rates.
• Reverse Repo Rate: The rate at which banks park excess funds with RBI. It affects liquidity in the banking system but has an indirect impact on borrowers.
• Cash Reserve Ratio (CRR): The proportion of bank deposits that must be held with RBI. This ensures banks maintain sufficient liquidity for customer withdrawals.

Bottom Line: With the repo rate now 5.25%, borrowers can expect cheaper loans, while inflation remains low and GDP growth robust—a favorable environment for both households and businesses.