RBI Cuts Repo Rate to 5.25% Amid Neutral Policy Stance

Monetary Policy Statement; Dated: 05.12.2025

1. Introduction

In a widely anticipated move, the Reserve Bank of India (RBI) reduced the repo rate by 25 basis points, bringing it down to 5.25%. This marks the central bank’s continued effort to support economic growth amid moderating inflationary pressures. The Monetary Policy Committee (MPC) voted by a majority to implement this cut while maintaining a neutral policy stance, signalling flexibility for future adjustments based on evolving macroeconomic conditions.

2. Key Highlights of the Policy Announcement

The repo rate cut aims to enhance liquidity, boost consumption, and encourage credit flow to priority sectors. Alongside the rate reduction, the RBI also retained the reverse repo rate and bank rate at corresponding levels. The neutral stance indicates that the central bank is neither biased toward tightening nor easing, keeping its options open depending on future data trends such as inflation, GDP growth, and global economic cues.

3. Impact on Borrowers and Financial Markets

The immediate beneficiaries of this rate cut are expected to be borrowers, as banks may pass on the benefit of lower interest costs on loans. Home loans, auto loans, and MSME credit could become more attractive, potentially stimulating demand. Financial markets reacted positively to the announcement, with bond yields easing and investor sentiment improving due to expectations of increased liquidity and borrowing appetite.

4. Economic Rationale Behind the Rate Cut

RBI’s decision reflects its assessment of moderating inflation levels and the need to support economic revival. The central bank noted that while inflation remains within the target band, external uncertainties such as global commodity prices and geopolitical tensions persist. By cutting the repo rate, the MPC aims to create a conducive environment for growth, while the neutral stance provides space for calibrating future moves based on incoming economic data.

5. Conclusion

The RBI’s 25 bps rate cut to 5.25% signals a balanced approach toward sustaining growth without compromising inflation control. The neutral stance offers the central bank flexibility to respond to global and domestic developments in the coming months. As India navigates its economic recovery path, the effectiveness of this policy shift will depend on how quickly banks transmit these benefits to consumers and how businesses respond to improved credit conditions.

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