RBI Cuts Repo Rate to 5.25%: Signals Beginning of a New Monetary Easing Cycle

In a major monetary policy shift, the Reserve Bank of India (RBI) on 5 December 2025 reduced the repo rate by 25 basis points to 5.25%, marking the first rate cut of the current easing cycle. The decision was taken by the six-member Monetary Policy Committee (MPC), signalling that the central bank is now prioritising growth support amid easing inflationary pressures.
Reports from Mint and Hindustan Times confirm that the move was largely anticipated by markets, given stable macroeconomic indicators and improving global financial conditions.

RBI Moves to Inject System Liquidity

₹1 Lakh Crore OMO Purchases + USD/INR Swap Announced

Along with the policy rate cut, the RBI unveiled a substantial liquidity infusion strategy. It announced:

• ₹1 lakh crore (₹1 trillion) Open Market Operation (OMO) purchases of government securities, and
• A foreign-exchange swap (USD/INR) intended to release additional rupee liquidity into the banking system.

These tools are aimed at easing financial conditions, supporting credit flow, and ensuring that transmission of the rate cut occurs smoothly across banks and NBFCs. The RBI noted that liquidity had tightened due to festive-season currency leakage and lumpy government cash balances, making intervention necessary.

Economic Rationale Behind the Rate Cut

Low Inflation and Stable Outlook Allow Policy Space

According to Hindustan Times, the MPC cited comfortably low inflation, a benign food-price outlook, and resilient growth projections as the reasons for shifting to a more accommodative stance. Headline CPI has remained within the 2–6% tolerance band, giving the central bank room to stimulate demand without triggering price instability.

The rate cut is expected to lower borrowing costs for home loans, consumer credit, MSME lending, and corporate borrowings. Economists believe the cut, combined with liquidity support, will help strengthen investment sentiment and reduce the cost of capital, especially for infrastructure and manufacturing sectors.

Broader Economic Impact

Boost to Consumption, Investment, and Fiscal Stability

Lower interest rates typically improve household consumption, speed up retail credit demand, and support sectors dependent on financing. For the government, the easing cycle may reduce bond yields, easing the fiscal burden of borrowing.
Market analysts expect at least one more rate cut in early 2026, provided inflation remains aligned with RBI’s projections.

With this policy shift, the RBI has set the tone for a growth-supportive monetary environment, balancing stability with economic momentum as India advances towards its medium-term development goals.