RBI Slashes Repo Rate By 25 Basis Points to 5.25% — Loans to Get Cheaper
The Reserve Bank of India (RBI) on December 5, 2025, cut the repo rate from 5.50% to 5.25%.
The move, part of a total 125-bps reduction this year aims to lower borrowing costs and could lead to reduced EMIs for retail borrowers with floating-rate loans.
Highlights of the RBI Monetary Policy of Today
The Monetary Policy Committee (MPC) of the Reserve Bank of India unanimously decided to cut the repo rate by 25 basis points (bps), bringing the key policy rate down from 5.50% to 5.25%.
This is the latest in a series of rate reductions in 2025; total cuts amount to 125 bps since the start of the year.
Alongside the repo rate cut, the MPC maintained a neutral policy stance for now, while also revising down its inflation and growth forecasts.
Why RBI Cut the Rate
Inflation in India has dropped to a multi-decade low, giving the central bank room to ease rates without triggering price pressures.
The economy continues to show robust performance: GDP growth for Q2 FY2026 came in at 8.2%, indicating sustained demand and economic activity.
With both disinflation and growth momentum, RBI opted to ease monetary conditions to support credit flow and consumption an attempt to harness a “growth-friendly, low-inflation” environment.
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What It Means for Borrowers: Lower EMIs & Cheaper Loans
📉 Lower Loan Costs for Floating-Rate Borrowers
The repo rate is the benchmark at which RBI lends short-term funds to banks. When the repo rate falls, banks’ own borrowing costs decrease and many pass on part of these savings to customers via lower interest rates.
For borrowers with floating-rate home loans, car loans, personal loans, or business loans, this generally translates into reduced EMIs or lower interest outgo.
🏠 Example: Home Loan EMI Reduction
As some industry estimates suggest, on a ₹50 lakh home loan over 20 years, even a modest reduction in interest rate triggered by repo rate cuts might bring down monthly EMI by ₹800–₹1,500 or more depending on the bank’s spread.
Over the entire loan tenure, this can add up to substantial savings making home ownership more affordable.
⚠️ Who Benefits and Who May Not
Borrowers under floating or external-benchmark-linked loans benefit fastest because their rates reset in line with repo changes.
Those with fixed-rate loans may not see any change unless they refinance or switch to floating-rate plans.
The speed and extent of benefit depend on how quickly banks adjust their lending rates which can vary across institutions.
Broader Economic & Market Impacts
The rate cut and accompanying support measures are designed to maintain credit flow, stimulate borrowing, and support consumption and investment.
It could also provide a boost to sectors dependent on bank credit real estate, auto, consumer durable sales, small businesses as cheaper loans make purchases and expansion more affordable.
On the flip side, returns on savings instruments like fixed deposits may come under pressure, as banks often lower deposit rates following repo cuts.
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What Borrowers Should Do: Smart Moves to Leverage the Cut
Check your loan type: If you’re on a floating or repo-linked loan, you likely stand to benefit soon.
Consider refinancing or balance transfer: If you’re on a fixed-rate loan, explore switching to a floating-rate loan — but evaluate long-term risks before doing so.
Use EMI calculators: Recompute your monthly instalments to gauge how much you might save, and plan prepayments or other financial adjustments.
Watch bank announcements: Banks may take a few weeks to transmit the rate cut to loan customers. Keep an eye on official notices or reach out to your lender.
In Summary
The RBI’s decision to slash the repo rate by 25 bps dropping it to 5.25% is a welcome relief for borrowers. With inflation low and economic growth strong, this rate cut offers the potential for cheaper loans and lower EMIs, especially for homeowners and those carrying floating-rate loans.
While the benefits will depend on how quickly banks pass on the rate reduction, for many households and businesses it could translate into real savings, making debt servicing easier and encouraging renewed borrowing or investment.
Team: Yuvamorcha.com
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