Context:
The Reserve Bank of India (RBI), in its final Monetary Policy Committee (MPC) meeting of 2025, unanimously decided to reduce the repo rate by 25 basis points, bringing it down to 5.25%. This marks the fourth rate cut in 2025, following previous reductions of 25 bps in February and April, and 50 bps in June, while the rate remained unchanged in August and October.
Objectives and Rationale:
The repo rate cut is aimed at:
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- Boosting liquidity in the market.
- Encouraging spending in rate-sensitive sectors such as banking, real estate, and consumer durables.
- Supporting economic growth while keeping inflation within the RBI’s target range.
- Boosting liquidity in the market.
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According to experts, the move signals the RBI’s pro-growth stance, demonstrating readiness to support credit flow and demand-led recovery in the economy.
Impact on Home Loan Borrowers:
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- The repo rate cut has direct implications for floating-rate home loans, as most are linked to the repo rate. Analysts estimate significant relief for borrowers:
- For a ₹50 lakh home loan over 20 years at 8% interest, monthly EMI reduces from ₹41,822 to ₹41,047 (~₹775 relief).
- For a 15-year loan, EMI decreases from ₹47,783 to ₹47,064 (~₹719 relief).
- Considering cumulative rate cuts of 125 bps in 2025, the total net relief could be approximately ₹3,939 per month for a 20-year loan and ₹7,649 for a 15-year loan.
- For a ₹50 lakh home loan over 20 years at 8% interest, monthly EMI reduces from ₹41,822 to ₹41,047 (~₹775 relief).
- Existing borrowers also benefit. They can either reduce their EMIs or shorten their loan tenure while maintaining the same EMI. For instance, a ₹50 lakh 20-year loan taken at 9% at the beginning of 2025 could now finish 43 months earlier, and a 15-year loan could finish 22 months earlier.
- The repo rate cut has direct implications for floating-rate home loans, as most are linked to the repo rate. Analysts estimate significant relief for borrowers:
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Impact on Real Estate and Other Sectors:
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- The repo rate cut is expected to positively impact real estate developers, enabling easier access to working capital, financing of large projects, and faster construction of townships and integrated developments.
- Consumer sectors are also expected to benefit due to increased disposable income from lower EMIs, boosting spending on durables and other goods.
- The repo rate cut is expected to positively impact real estate developers, enabling easier access to working capital, financing of large projects, and faster construction of townships and integrated developments.
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About monetary policy:
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- Monetary policy refers to the use of monetary instruments by the central bank to regulate interest rates, money supply, and availability of credit in order to achieve the broader objectives of economic policy. Its primary aim is to maintain price stability while supporting economic growth.
- The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy, as mandated under the Reserve Bank of India Act, 1934.
- Monetary policy refers to the use of monetary instruments by the central bank to regulate interest rates, money supply, and availability of credit in order to achieve the broader objectives of economic policy. Its primary aim is to maintain price stability while supporting economic growth.
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Conclusion:
The RBI repo rate cut of December 2025 reflects a balanced policy approach — fostering growth, supporting credit flow, and offering relief to home loan borrowers, while maintaining price stability. The move is expected to stimulate investment, consumption, and real estate activity, reinforcing economic resilience as India heads into 2026.
