Reserve Bank of India Cuts Repo Rate to Support Economic Growth

The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points to 5.25%, marking the fourth rate cut this year and bringing the total reduction to 125 basis points. This decision was unanimously made by the six-member Monetary Policy Committee (MPC) during its meeting from December 3 to 5, 2025.

In addition to the rate cut, the RBI announced measures to enhance liquidity in the banking system. These include open market operations (OMO) involving the purchase of government securities worth ₹1 trillion (approximately $11.14 billion) and a $5 billion three-year dollar-rupee foreign exchange swap, both scheduled for December. These initiatives aim to inject up to $16 billion into the banking system to support liquidity and the bond market.

The RBI's actions aim at supporting India's economy amid global challenges, including U.S.-imposed tariffs. The central bank projects a GDP growth of 7.3% for the fiscal year 2025-26, up from an earlier estimate of 6.8%, and anticipates inflation to decrease to 2% from 2.6%.

Following the announcement, the Indian rupee weakened, trading at 89.92 against the U.S. dollar, marking a 5% depreciation for the year. This decline is attributed to weak trade and capital flows, as well as increased U.S. trade tariffs.

This rate cut is the fourth in 2025, totaling a cumulative reduction of 125 basis points for the year. The RBI's measures reflect its commitment to fostering economic growth while managing inflation and currency stability.

The reduction in the repo rate is expected to lower borrowing costs for consumers and businesses, potentially boosting spending and investment. However, the depreciation of the rupee may increase the cost of imports, affecting consumers and industries reliant on foreign goods.

The Reserve Bank of India is the country's central banking institution, responsible for regulating the monetary policy of the Indian rupee. The Monetary Policy Committee (MPC) is a statutory body constituted under the Reserve Bank of India Act, 1934, responsible for fixing the benchmark interest rate in India.

RBI Governor Sanjay Malhotra stated, "Despite an unfavourable and challenging external environment, the Indian economy has shown remarkable resilience. It is poised to register high growth. The headroom provided by the inflation outlook has allowed us to remain growth supported."

The RBI's decision to cut the repo rate and implement liquidity measures reflects its commitment to fostering economic growth while managing inflation and currency stability amid global economic challenges.