Key Policy Shift
RBI Monetary Policy Shift December 2025: The Monetary Policy Committee (MPC) reduced the repo rate to 5.25% in its December 2025 meeting. This move came after reviewing inflation behaviour, growth signals and global headwinds. Other policy rates adjusted automatically, keeping the SDF at 5.00% and MSF and Bank Rate at 5.50%.
Despite lowering rates, the stance remained neutral, indicating data-dependent decisions ahead. One member sought an accommodative stance, reflecting internal divergence.
Static GK fact: The MPC was established in 2016 under amendments to the RBI Act, 1934, introducing inflation targeting in India.
Why the MPC Opted for a Rate Cut
India entered a rare policy window where inflation hit historic lows while growth momentum began showing mild fatigue. With borrowing costs easing, the objective was to sustain consumption and investment.
Lower rates also help transmit liquidity to businesses, improving credit flow during early signs of softening economic activity.
Static GK Tip: The repo rate is the primary tool used by the RBI to manage liquidity and inflation.
Global Backdrop Influencing the Decision
Global recovery improved, but warning signs persisted—volatile equity markets, uneven inflation trends and safe-haven flows strengthening the US dollar.
Trade negotiations progressed, yet advanced economies struggled with price stability. This mix of optimism and caution shaped India’s external sector outlook.
Static GK fact: The IMF’s World Economic Outlook often guides global risk assessments used by central banks.
India’s Growth Momentum
India posted 8.2% GDP growth in Q2 2025-26, supported by industry and services. Factors such as GST rationalisation, lower crude prices and strong corporate balance sheets improved economic resilience.
High-frequency indicators in Q3 showed festival-led demand and rising private investment, though merchandise exports weakened due to subdued global demand.
Static GK Tip: GDP is measured by both the production approach (GVA) and expenditure approach.
What Will Drive Growth Ahead
Growth is expected to remain driven by agriculture prospects, GST reforms, and improved credit conditions. Rural spending and corporate health are likely to support domestic demand.
RBI projected 7.3% GDP growth for FY 2025-26, with moderation expected in the following quarters as global demand stabilises.
Inflation Trends Shaping Policy
Inflation eased sharply in October 2025 due to a correction in food prices and stable core inflation. With inflation falling below earlier projections, monetary policy gained space for a calibrated rate cut.
Underlying pressures remained muted, strengthening confidence that price stability is holding.
Inflation Outlook
The RBI expects 2.0% inflation for FY 2025-26, marking one of the lowest readings in recent years. A favourable kharif and rabi season, combined with easing global commodity prices, contributed to this projection.
Inflation for FY 2026-27 is expected to firm gradually, aligning closer to the 4% target.
Static GK fact: India’s formal inflation target is 4% ±2%, adopted in 2016 under the inflation-targeting framework.
Why the Meeting Matters
The December 2025 meeting highlights how monetary policy anticipates future risks. Low inflation, early growth softening and stable liquidity encouraged a proactive rate cut. For aspirants, it explains how central banks balance growth support with price stability, even amid uncertain global cues.
Static Usthadian Current Affairs Table
RBI Monetary Policy Shift December 2025:
| Topic | Detail |
| Repo rate | Reduced to 5.25% |
| Policy stance | Neutral |
| SDF rate | 5.00% |
| MSF and Bank Rate | 5.50% |
| Projected GDP FY 2025-26 | 7.3% |
| Inflation FY 2025-26 | 2.0% |
| Inflation target | 4% ±2% |
| Q2 GDP growth | 8.2% |
| Key reason for rate cut | Low inflation with softening growth |
| Global concern | Uneven inflation and volatile markets |
