Finance
On Friday, December 5, 2025, Reserve Bank of India (RBI) Governor Sanjay Malhotra announced that the MPC (Monetary Policy Committee) agreed unanimously to lower the policy repo rate by 25 basis points to 5.25 percent. From December 3 to 5, the Monetary Policy Committee (MPC) held its fifth bi-monthly meeting for fiscal year 26. The central bank has previously cut the primary short-term loan rate (repo) by 100 basis points in three tranches, commencing in February, in response to falling consumer price index (CPI) inflation.
The decision was made unanimously during a three-day meeting of the RBI’s Monetary Policy Committee (MPC), which meets every two months to determine the central bank’s policy, as it weighed record low inflation against a plunging rupee, which hit its lowest point yesterday.
In June, the MPC cut the main lending rate from 6% to 5.5% in response to lower inflation expectations. A reduction in the repo rate is projected to result in cheaper housing and vehicle loans for retail customers.
Inflation and growth
The RBI expects retail inflation to be softer than its earlier projection, with underlying inflation pressures being lower than the headline estimates. Consumer Price Index (CPI) inflation, or retail inflation, has been projected downwards at 2% for FY2025-26.
For the first quarter of FY2026-27, the inflation is projected at 3.9%, lower than its previous estimate of 4.5%, with a rise in precious metal prices expected to add to the headline CPI. The risks to inflation forecasts are evenly balanced, Malhotra said.
The RBI has also sharply raised the Gross Domestic Product (GDP) forecast for the current financial year to 7.3% from its earlier estimate of 6.8%. The GDP forecast for the current quarter (Q3, October-December) is also higher at 6.7% than the earlier 6.4%.
Last quarter recorded a six-quarter high GDP growth at 8.2%.
The growth-inflation balance continues to provide policy space, said Malhotra.
Major Decisions
Besides the repo rate, the MPC also adjusted the Standing Deposit Facility (SDF) to 5% and Marginal Standing Facility (MSF) to 5.5%.
A decision has also been taken to conduct forex swaps and buy bonds worth Rs 1 lakh crore via Open Market Operations (OMO) auctions, hoping that these would facilitate monetary transmission and provide sufficient liquidity.
2025 Wrap
In the final month of 2025, Malhotra stated that the year had good GDP and moderate inflation despite ongoing problems from geopolitical and trade concerns.
The RBI’s posture is neutral, and it enters the new year with renewed enthusiasm, vigour, and determination, he stated, adding that the bank’s financial metrics remain strong, with bank credit increasing and retail lending supporting growth.
