The Reserve Bank of India (RBI) has reduced the repo rate by 0.25% to 5.25% which will make loans cheaper in the coming days, and existing EMIs will also decline. This decision was taken during the Monetary Policy Committee (MPC) meeting held from December 3 to 5, and was announced by RBI Governor Sanjay Malhotra on December 5.
The repo rate is the rate at which the RBI lends money to commercial banks. A cut in the repo rate lowers the cost of borrowing for banks, which they typically pass on to customers. As a result, loans such as home and auto loans are likely to become 0.25% cheaper in the coming days.
With the latest reduction, the EMI on a ₹20 lakh loan for 20 years will fall by about ₹310, while the EMI on a ₹30 lakh loan will decrease by around ₹465. Both new and existing borrowers stand to benefit from this. Lower interest rates are also expected to boost housing demand, as more people will be able to invest in real estate.
Repo rate reduced four times this year, total cut of 1.25%
The RBI has cut the repo rate four times this year, bringing the total reduction to 1.25%.
- In February, the rate was reduced from 6.5% to 6.25%—the first cut in nearly five years.
- The next cut, in April, brought it down by another 0.25%.
- In June, the rate was reduced by 0.50%.
- The latest cut of 0.25% brings the repo rate to 5.25%.
Why does the RBI change the repo rate?
The repo rate is a key monetary policy tool used to control inflation and manage economic growth.
- To control inflation: When inflation is high, the RBI increases the repo rate. This makes loans costlier for banks and customers, reducing money flow and cooling demand.
- To support economic growth: When the economy slows, the RBI lowers the repo rate to make borrowing cheaper. This increases liquidity, boosts spending, and supports economic recovery.
MPC meets every two months
The Monetary Policy Committee has six members—three from the RBI and three appointed by the central government. The MPC meets every two months to review economic conditions and decide the policy rate.
Recently, the RBI released the MPC meeting schedule for the 2025–26 financial year. A total of six meetings will be held. The first meeting took place on April 7–9.