The Reserve Bank of India (RBI) delivered a significant policy update on 5 December 2025, shaping the direction of India’s money markets, loan rates, and economic momentum. In its latest monetary review, the RBI announced a 25 basis point reduction in the repo rate, bringing it down to 5.25%, and unveiled a powerful liquidity support package designed to keep credit flowing smoothly across the economy.
This development comes at a time when inflation remains well-behaved and India’s growth cycle is gaining strength—giving the central bank enough confidence to ease policy and support financial conditions further.
🔔 Key Highlights of RBI’s December 5 Announcement
1️⃣ Repo Rate Reduced to 5.25%
The Monetary Policy Committee (MPC) voted to cut the repo rate by 0.25%, marking a shift toward a more accommodative stance. With borrowing costs set to decline, the RBI aims to push consumption, investment, and credit uptake.
2️⃣ ₹1 Lakh Crore Bond Purchase Program
To ensure banks have enough liquidity, the RBI will conduct Open Market Operations (OMOs) totaling ₹1 trillion. These purchases are scheduled in two phases during December.
3️⃣ $5 Billion Forex Swap Planned
A three-year USD/INR swap worth $5 billion will be executed to stabilize currency flows and maintain comfortable liquidity in the banking system.
4️⃣ Updated Growth & Inflation Outlook
RBI slightly altered its projections for FY26, indicating confidence in growth while expecting inflation to stay under control. The central bank believes India is in a favourable economic zone with the opportunity to support expansionary policies.
📌 Why RBI Opted for a Rate Cut
The decision didn’t come out of the blue. Several interconnected factors shaped it:
✔ Inflation Under Control
Retail inflation has remained comfortably within the RBI’s tolerance band for months, giving policymakers more room to reduce rates without triggering price pressures.
✔ Strong Domestic Momentum
Economic indicators—from manufacturing output to services activity—show steady improvement. RBI wants to reinforce this upswing by making credit more accessible.
✔ Need to Strengthen Liquidity
The combination of OMOs and FX swaps reflects RBI’s attempt to maintain healthy liquidity. A smoother credit environment boosts lending and ensures businesses face fewer financing hurdles.
✔ Supportive Global Conditions
With global inflation easing and major economies stabilizing, RBI sees this as an opportunity to nurture India’s internal growth cycle without external risk pressure.
🏦 How This Will Impact Various Segments
🔹 Borrowers & Households
Loan EMIs are expected to ease once banks begin adjusting their lending rates.
Benefits include:
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Lower home loan EMIs
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Cheaper car loans
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Easier access to personal and education loans
People planning to borrow in the next few months may find this an advantageous time.
🔹 Businesses & Industries
Lower interest rates reduce operational and borrowing costs.
This encourages:
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Expansion plans
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Machinery and capital purchases
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Easier working-capital access
Small and medium enterprises (SMEs) stand to gain the most, as liquidity infusion generally leads to better credit availability.
🔹 Stock Market & Investors
Equity markets typically react positively when RBI cuts interest rates.
Expected outcomes:
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Stronger buying in rate-sensitive sectors (real estate, banking, auto)
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Improved corporate profit outlook
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Potential FPI inflows due to better economic prospects
The policy’s growth-friendly tone can translate into long-term market optimism.
🔹 Overall Economy
The combined moves—rate cut + bond buys + FX swap—indicate sustained monetary support. This will:
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Boost credit growth
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Support consumption
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Help maintain currency stability
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Aid the investment cycle
With inflation under check, the RBI sees this as the right time for expansionary steps.
📉 Points to Watch Out For
Despite the positive tone, a few considerations remain important:
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Deposit rates could decline, affecting senior citizens and savers.
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Banks may take time to transmit the rate cut to borrowers.
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Global uncertainties (oil prices, war, commodity shocks) can influence inflation later.
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If growth rises too sharply, inflation may rebound, prompting future policy tightening.
📢 Final Thoughts: A Growth-Friendly Policy for India
RBI’s December 5 policy marks a deliberate move towards strengthening India’s domestic economy. By lowering the repo rate, ensuring deep liquidity through bond purchases, and stabilizing forex flows, the central bank has delivered a highly supportive environment for borrowers, businesses, and markets.
With inflation stable and growth showing resilience, this mix of measures is likely to accelerate economic momentum in the coming months. For households and companies alike, the policy sets a positive tone for 2026.
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