The Reserve Bank of India cut its benchmark repo rate by 25 basis points to 5.25% on 5 December 2025, the Monetary Policy Committee announced following its scheduled meeting. The reduction is the fourth of the year, bringing the cumulative easing delivered by the RBI in 2025 to 125 basis points. Governor Sanjay Malhotra cited a softening inflation outlook as the principal justification for the cut, noting that the trajectory of consumer prices had created space for the Committee to provide additional support to growth.
The MPC maintained a neutral policy stance alongside the rate cut.
INFLATION OUTLOOK
Consumer Price Index inflation eased through 2025 as food prices fell. The RBI targets CPI inflation at 4%, with a tolerance band of plus or minus two percentage points. Headline CPI inflation was at an all-time low in October 2025, below that target.
There were emerging signs of weakness in a few leading indicators and a fall in merchandise exports in October.
The four reductions were not of equal size: the RBI cut by 25 basis points in February and April, by 50 basis points in June, and by 25 basis points in December.
TRANSMISSION
The RBI's external benchmark lending rate framework, which links retail loan rates directly to the repo rate for certain categories of credit, provides a mechanism for faster transmission in those segments.
For borrowers with existing loans linked to the repo rate, the December reduction will lower their interest costs at the next rate reset.