vajiraoias

The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points (bps), bringing it down from 5.50% to 5.25% in the December 2025 Monetary Policy Committee (MPC) meeting. This important monetary policy decision comes at a time when India is witnessing a rare “Goldilocks period”, as described by the RBI Governor — a phase where economic growth remains strong while inflation stays low, stable, and well-anchored. The repo rate is the interest rate at which the RBI lends short-term funds to commercial banks. A cut in the repo rate lowers the borrowing cost for banks, which generally leads to a reduction in lending rates across the economy. As a result, loans become cheaper for individuals, businesses, MSMEs, and corporates. This directly translates into lower EMIs on home loans, vehicle loans, personal loans, and working capital loans, thereby boosting consumption and investment. The decision was taken unanimously by the six-member Monetary Policy Committee, which consists of three RBI officials — including the RBI Governor as Chairperson — and three external experts appointed by the Central Government. The MPC operates under the inflation targeting framework mandated by the RBI Act, 1934 (amended in 2016), with the primary objective of maintaining price stability while supporting economic growth. The inflation target is set at 4% with a tolerance band of ±2%. This repo rate cut is significant as it is the first reduction after two consecutive policy pauses. Earlier, in June 2025, the RBI had cut the repo rate by a sharp 50 bps. With the latest move, the total repo rate cut in FY 2025–26 stands at 100 bps, from 6.25% to 5.25%. The RBI cited two key reasons for this action — stronger-than-expected GDP growth and steadily cooling inflation, which together provided enough policy space to support growth. On the external front, the RBI also addressed concerns related to the depreciation of the Indian rupee, which recently breached the psychological 90-mark against the US dollar. The RBI clarified that it does not target any specific exchange rate and follows a market-determined exchange rate regime. Intervention in the forex market is limited to curbing excessive volatility and ensuring orderly market conditions. To maintain adequate liquidity in the financial system, the RBI announced additional measures, including Open Market Operations (OMO) involving the purchase of government securities worth ₹1 lakh crore, and a USD 5 billion three-year USD/INR buy–sell swap to inject durable liquidity. Overall, the repo rate cut, combined with liquidity support, reinforces RBI’s growth-friendly stance while keeping inflation firmly under control. 👉 Join Our WhatsApp Channel- https://www.whatsapp.com/channel/0029VaaGAqPCxoAugdgpyH41 For any Query- Call Now: 📞 8988885050 or 8988886060 Email: 📩 info@vajiraoinstitute.com 🌐 Visit: www.vajiraoinstitute.com Registration is Now Open for both online and offline batches in 2025. Hurry up, limited seats. 📌 Follow us on Social Media: Facebook - https://www.facebook.com/vajiraoinstitute/ Twitter - https://x.com/vajiraoandreddy LinkedIn - https://www.linkedin.com/school/vajirao-and-reddy-institute-delhi Pinterest - https://in.pinterest.com/vajiraoandreddyinstitute #RBIMonetaryPolicy #RepoRateCut #RBI #MPC #InflationControl #EconomicGrowth #IndianEconomy #InterestRates #EMIReduction #UPSCCurrentAffairs #BankingAwareness #FinanceNews #IndiaEconomy #MonetaryPolicy