RBI Slashes Repo Rate By 0.25%, Loans Likely To Get Cheaper Now

The Reserve Bank of India's Monetary Policy Committee has unanimously lowered the repo rate by 25 basis points to 5.25%, while keeping its policy stance "neutral". The decision on 5 December signals a cautious wait-and-watch approach, as inflation stays steady and growth remains solid but not overheated.

Following the move, the MPC retained its "neutral" stance, indicating no clear bias towards further cuts or hikes. The decision aligns with many market forecasts that expected a small reduction now, followed by a potentially long pause, as the committee tracks data on prices and demand.

RBI monetary policy and repo rate details

Key policy rates show a modest shift since the October RBI monetary policy review, when the repo rate was left unchanged at 5.50%. The December RBI monetary policy decision trims that rate to 5.25%, as shown below, while other benchmarks remain aligned to earlier settings.

RBI monetary policy, repo rate and liquidity support

Apart from the repo rate cut, the RBI monetary policy statement includes liquidity support steps. The RBI plans open market operations worth ₹1 lakh crore in December. A three-year USD/INR swap of $5 billion is also scheduled, aimed at smoothing money market conditions and easing financial stress.

Bond traders reacted quickly to the RBI monetary policy signals and the repo rate move. Government bond yields slipped after the liquidity measures were unveiled. The 10-year benchmark yield dropped 3 basis points to 6.47%, compared with the earlier close of 6.51%, suggesting some relief in borrowing costs.

RBI monetary policy, repo rate outlook and inflation

On prices, the RBI monetary policy assessment highlights softer core inflation in the second quarter. The central bank expects this measure to stay contained, helped by lower precious metal prices. The RBI now pegs full-year CPI inflation at 2%, below the forecast shared in the October review.

Growth data gives the RBI monetary policy room to adjust the repo rate carefully. July–September GDP rose 8.2%, stronger than many expected. Several analysts have lifted full-year growth estimates beyond 7%, close to India's potential growth band of 6.5–7%, which is seen as non-inflationary.