MPC cuts repo rate by 25 bps to a 3-year low

Reserve Bank of India (RBI) Governor Sanjay Malhotra
| Photo Credit:
PTI

The Reserve Bank of India’s Monetary Policy Committee (MPC) on Friday made a unanimous decision to reduce the policy repo rate by 25 basis points (bps), marking a shift towards supporting economic expansion amid subdued price pressures. This move comes despite the economy recording an 8% growth rate during the first half of fiscal year 2025-26, with projections indicating moderate softening ahead.

Following two consecutive policy reviews maintaining status quo, the six-member committee lowered the benchmark lending rate from 5.50% to 5.25%, reaching its lowest level in three years. The MPC retained its neutral policy stance, though Delhi School of Economics Director Ram Singh advocated for adopting an accommodative position.

This reduction represents the central bank’s fourth consecutive rate adjustment in 2025, totaling 125 bps in cumulative easing for the calendar year. Financial markets had earlier expressed divided opinions regarding the likelihood of this monetary policy shift.

Liquidity Enhancement Initiatives

Complementing the rate reduction, the central bank announced measures to boost systemic liquidity, including ₹1 lakh crore in government bond purchases through open market operations and a $5 billion foreign exchange swap later this month. These actions aim to ensure durable rupee liquidity within the banking system.

The monetary authority simultaneously revised its full-year economic growth forecast upward to 7.30% from 6.80%, while slashing its inflation projection to 2% from 2.60%. Governor Sanjay Malhotra characterized the current situation as an unusual alignment of steady growth and muted inflation.

Published on December 5, 2025