RBI Monetary Policy December 2025, RBI Slashes Repo Rate by 25 bps as RBI Signals Confidence in Economic Growth

The Reserve Bank of India (RBI) announced its final monetary policy for 2025 on 5 December, delivering another boost to the economy by cutting the repo rate by 25 basis points. The decision, taken unanimously by the Monetary Policy Committee (MPC) led by Governor Sanjay Malhotra, brings the policy rate down to 5.25% from 5.50%.

RBI Monetary Policy December 2025

This marks the fourth consecutive rate cut of the year, with a cumulative 125 basis points reduction in 2025 reflecting the central bank’s strong confidence in India’s macroeconomic stability and the need to support further economic momentum.

From December 3 to 5, 2025, the MPC held its 58th meeting. Led by RBI Governor Shri Sanjay Malhotra, it was attended by:

• Dr. Nagesh Kumar
• Shri Saugata Bhattacharya
• Prof. Ram Singh
• Dr. Poonam Gupta
• Shri Indranil Bhattacharyya

A Neutral Stance with a Positive Outlook

Despite the rate cut, the MPC retained its neutral stance, indicating that future policy moves will be guided by incoming data, particularly inflation dynamics and global economic conditions. The combination of rate easing and a neutral stance suggests flexibility supporting growth while remaining prepared to adjust policy as needed.

A “Goldilocks” Phase for the Indian Economy

Governor Malhotra described the current economic environment as a “rare Goldilocks period” a phase where:

• Growth is high: GDP for Q2 FY26 stood at a robust 8.2%
• Inflation is extremely low: Headline CPI dropped to ~0.25% in October 2025, the lowest on record

This combination of strong output expansion and sharply reduced price pressures provided the MPC the confidence to extend its rate-cutting cycle for the fourth time this year.

Upward Revision in GDP Forecast

The Reserve Bank of India has expressed growing optimism about the country’s economic performance, noting that domestic demand continues to gather momentum across multiple sectors. Amid signs of robust consumption, expanding industrial activity, and strong corporate health, the central bank sees a sustained recovery that justifies a significant upward adjustment in growth expectations for the current financial year.

Reflecting the strong recovery and momentum in domestic demand, the RBI sharply upgraded the GDP growth forecast for FY 2025-26:

• New projection: 7.3%
• Earlier projection: 6.8%

Quarterly expectations are:

• 7.0% in Q3
• 6.5% in Q4

The upward revision was supported by:

• Strong rural and agricultural activity
• Healthy corporate balance sheets
• Rising private investment
• Continued resilience in services and manufacturing

Inflation Forecast Cut to 2.0%

Price pressures have eased significantly across the economy. The CPI inflation forecast for FY 2025-26 has now been reduced to:

• New projection: 2.0%
• Earlier projection: 2.6%

Break-up:

• 0.6% in Q3
• 2.9% in Q4

For FY 2026-27, inflation is expected to rise gradually toward the target:

• 3.9% in Q1
• 4.0% in Q2

The decline is broad-based, led by a sharp correction in food prices and stable core inflation. According to RBI, both headline and core inflation are likely to hover close to the 4% target in early FY27, ensuring medium-term price stability.

Major Liquidity Measures to Support Transmission

To ensure the smooth and effective transmission of rate cuts into the financial system, the RBI announced significant liquidity-enhancing measures:

1. ₹1 Lakh Crore OMO Purchase

The RBI will conduct Open Market Operations (OMO) to buy government securities worth ₹1 lakh crore in December.
This will inject long-term liquidity, ease bond yields, and support credit flow.

2. $5 Billion USD/INR Buy–Sell Swap

A three-year dollar-rupee buy/sell swap worth $5 billion will be executed, providing short-term forex liquidity and stabilizing market conditions. Governor Malhotra added that the RBI remains comfortable with current rupee levels, and recent U.S. tariff changes are expected to have minimal impact on India’s external sector.