Loan EMIs to Drop as RBI Slashes Repo Rate - Full MPC December 2025 Highlights

In December 2025, The Reserve Bank of India (RBI) surprised borrowers with good news as it lowered its benchmark interest rate (REPO Rate) for the second time this financial year. The 25 basis point reduction means that the REPO Rate will now be 5.25% as opposed to 5.5%. This will have a positive impact on millions of retail borrowers, such as those who have home loans, auto loans, and personal loans, as they can expect to pay lower monthly payments (EMIs) in the future.

This decision was made by RBI Governor Sanjay Malhotra and reflects the belief from the RBI that even though there is uncertainty in the world economy, domestic inflation remains at a very low level and there is strong growth potential for India.

This article will look at (i) all MPC announcements in detail, (ii) what they mean for borrowers, and (iii) how they may affect the broader economy in India

Why the Repo Rate Cut Matters

The repo rate is the rate at which the RBI lends money to commercial banks. When it falls:

• Banks can borrow more cheaply
  
  

• Lending becomes more affordable
  
  

• EMIs for retail loans trend downward
  
  

• Liquidity in the economy improves
  
  

Banks are anticipated to revise their Repo-Linked Lending Rates (RLLR) downward based on the latest 5.25% rate announcement, which may result in decreasing payments for borrowers. Given that home loans are closely tied to the repo rate, the greatest benefit regarding decreased payments will come to those that have a home loan.

The Big Picture: Why RBI Cut Rates in December

The decision to reduce the key rate was unanimous. The RBI weighed record-low inflation, improving growth indicators, and a rupee that recently touched its lowest point.

Here are the major factors driving the cut:

1. Inflation Is Softer Than Expected

The Reserve Bank of India (RBI) has been monitoring retail inflation, which is calculated using the Consumer Price Index (CPI), and it has continued to track below their target range during this period. They will now be forecasting average inflation at about 2% for FY2025-26, showing a considerable downward movement compared with their previous forecasts.

2. India’s Growth Momentum Is Strong

The RBI revised its GDP projection upward:

• FY2025-26 GDP forecast: Up from 6.8% to 7.3%
  
  

• Q3 2025 (Oct–Dec) GDP forecast: Raised from 6.4% to 6.7%

Governor Malhotra noted that despite geopolitical tensions and global trade uncertainties, India’s domestic demand has remained resilient.

3. Policy Space Has Opened Up

With inflation cooling and growth firmly on track, the RBI believes it has enough breathing room to ease rates without destabilizing the rupee or bond markets.

Major MPC Decisions at a Glance

Here are the most important policy actions announced in the December 2025 MPC:

Repo Rate:

Down by 25 bps - 5.25%

Standing Deposit Facility (SDF):

Cut to 5%

Marginal Standing Facility (MSF):

Reduced to 5.5%

₹1 Lakh Crore Bond Purchase via OMO:

The RBI will buy government securities worth ₹1,00,000 crore through Open Market Operations, boosting liquidity in the banking system.

What This Means for Loan Borrowers

1. Home Loan EMIs Are Set to Fall

The repo rate is a major factor affecting home loans.

Banks typically update their lending rates over a period of 1 to 2 billing cycles; therefore, borrowers should anticipate a decrease in their EMI payments during that time.

A 25 basis point decrease may appear to be trivial, but the impact on long-term loans (20 to 30 years) will be quite noticeable.

2. Auto & Personal Loans May Also Become Cheaper

Banks often price these loans based on their internal cost of funds, but repo cuts do influence them indirectly. Expect slight drops in interest rates over the next few weeks.

3. Better Borrowing Conditions for New Customers

If you’re planning a new loan in early 2026, this is good news - banks are likely to launch year-end and New Year festive rate offers.

Impact on the Indian Economy

The RBI’s decision signals confidence in the Indian economy’s ability to absorb potential global shocks.

Stronger Domestic Demand

Lower EMIs put more disposable income into consumers’ hands, which may boost spending in:

• Real estate
  
  

• Automobiles
  
  

• Consumer goods
  
  

• Services
  
  

Liquidity Injection Through OMOs

The ₹1 lakh crore OMO purchase will:

• Ease pressure in the bond market
  
  

• Support government borrowing
  
  

• Improve credit flow to businesses
  
  

Rupee Concerns Remain

The rupee hit a low point prior to the announcement (just one day before). A cut in interest rates typically indicates additional pressure on the exchange rate; however, it seems that the Reserve Bank of India has sufficient confidence that the downward trajectory of inflation provides adequate support.

Looking Ahead: What to Expect in 2026

For the moment, the Reserve Bank of India (RBI) is adopting a neutral approach of neither being too dovish or too hawkish. However, depending on how long inflation holds at an average of around 2% and with global markets stabilizing, it is possible to see another very minor reduction in interest rates by early 2026.

Borrowers and markets will closely watch:

• The rupee’s trajectory
  
  

• Oil prices
  
  

• Inflation trends
  
  

• Global central bank actions

Final Word

With the repo rate cut in December 2025, it is evident that the Reserve Bank of India has placed growth front and center as our nation reaches the end of this year. As inflation continues to be managed and liquidity increases, expect both borrowers and businesses to experience an easier beginning to 2026. 

For now, the biggest takeaway is very simple: 

Your EMIs (Equated Monthly Installments) will be lighter, and the Indian economy will enter 2026 with newfound confidence.