Repo Rate Cut: EMIs will be cheaper! RBI reduces repo rate, providing relief on home and car loans.

Repo Rate Cut by RBI: Reserve Bank of India (RBI) Governor Sanjay Malhotra announced the Monetary Policy Committee (MPC) decision on Friday, December 5, 2025, stating that the repo rate has been reduced by 25 basis points. With this, the new repo rate has become 5.25% (Current Repo Rate 2025), effective immediately. The RBI believes that this move will increase demand in the market by making loans cheaper and boost economic activity.

What is the repo rate?

The repo rate is the interest rate at which the Reserve Bank provides loans to banks in the country. When the RBI increases the repo rate, banks receive funds at a higher interest rate, which in turn leads them to offer more expensive loans to their customers. Conversely, when the repo rate decreases, banks receive loans at a cheaper rate and reduce interest rates on all types of loans, including home loans, car loans, and personal loans. A lower repo rate also reduces EMIs, making borrowing easier.

When and why does the RBI reduce the repo rate?

When the economy slows, investment declines, or inflation is under control, the RBI reduces the repo rate (RBI reduced repo rate). This aims to provide banks with cheaper loans, which in turn leads to lower interest rates for customers. This results in loans like home loans, auto loans, and personal loans becoming easier and cheaper. People begin to spend and invest more, which increases market demand and boosts the economy.

When and why does the RBI raise the repo rate?

When inflation rises and there is excess liquidity in the market, the RBI raises the repo rate. This results in banks receiving higher interest rates from the RBI, and they also begin offering higher-priced loans to customers. As loans become more expensive, people spend less and borrow less. Consequently, the flow of cash in the market decreases, and inflation is controlled.

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