Monetary Policy Committee (MPC) reduced repo rate by 25 basis points
Why in news?
As of the RBI Monetary Policy Committee (MPC) meeting on December 3-5, 2025, the repo rate stands at 5.25%, reduced by 25 basis points from 5.50%. This marks the fourth cut in 2025, totaling 125 basis points, amid low inflation and strong growth.​
Reasons for reduction
- Benign Inflation Trends: Inflation stands at 2.2%, well below the 4% target, with headline and core inflation projected to remain at or below 4% in early 2026-27; low October CPI at 0.25% created room for the cut.​
- Growth Support Needed: Despite resilient 8.0-8.2% GDP growth in H1 2025-26, softening is expected in coming quarters, prompting a growth-supportive measure.​
- Goldilocks Scenario: Low inflation and high growth provide ideal conditions (Goldilocks zone) to reduce rates while sustaining economic resilience amid external challenges.​
- Unanimous MPC Decision: After assessing macro conditions, the committee unanimously voted for the 25 bps cut to 5.25%, maintaining a neutral stance.​
What is repo rate?
- The repo rate, or repurchase rate, is the interest rate at which the Reserve Bank of India (RBI) lends short-term funds to commercial banks against government securities as collateral.
- Banks use this facility to meet short-term liquidity shortages, acting as a key tool in RBI's monetary policy.​
Economic Impact of repo rate
- Lower repo rate: Reduces borrowing costs for banks, leading to cheaper loans for consumers and businesses, boosting housing, auto loans, investments, and sectors like SMEs and agriculture.​
- Higher repo rate: Increases loan EMIs, discourages spending and expansion, controls inflation, but may slow GDP growth.​
- Broader effects: Affects fixed deposit rates (likely to fall), stock markets (positive for cuts), and rupee value (higher rates attract foreign capital).​
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