The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) has announced a reduction in the repo rate. Following the final policy meeting of the year, RBI Governor Sanjay Malhotra on Friday declared that the repo rate has been cut by 25 basis points, bringing it down from 5.50% to 5.25%.
The MPC meeting began on December 3 (Wednesday), and the decision to reduce the rate was finalised at the conclusion of the discussions.
This marks the fourth repo rate cut of the year. In February, April and June, the RBI reduced the repo rate by a total of 100 basis points. With the additional 25 bps cut in December, the rate has been lowered by 1.25 percentage points in 2025.
At the beginning of the year, the repo rate stood at 6.50%, but after four rounds of reductions it now rests at 5.25%.
The MPC had kept the repo rate unchanged in its August and October meetings, maintaining a neutral policy stance. However, to boost an economy experiencing sluggish momentum this year, the RBI opted to cut interest rates in December.
The repo rate is the interest rate at which commercial banks borrow funds from the RBI. A reduction in this rate makes borrowing cheaper for banks, which may subsequently lead to lower lending rates for consumers—affecting home loans, auto loans and personal loans.
Lower interest rates typically stimulate investment and encourage spending in industrial and infrastructure sectors. As a result, reducing the repo rate is generally seen as an effective step toward revitalising economic activity.