How was RBI’s Repo Rate trend in 2025?

SYNOPSIS: Repo rate changes reflect RBI’s strategy to manage inflation, liquidity, and growth. Tracking these shifts helps individuals and businesses make informed borrowing, saving, and investment decisions aligned with evolving interest rate cycles.

Lately, two things have been dominating financial headlines and everyday conversations alike – the rupee sliding against the US dollar and the RBI’s move towards repo rate cuts. These developments have a direct bearing on borrowing costs, liquidity, and overall market sentiment, making it important to understand how key policy rates work.

The repo rate refers to the interest rate at which the Reserve Bank of India (RBI) provides short-term funding to commercial banks against government securities. These borrowings are usually overnight and serve as a key policy tool for managing liquidity and controlling inflation in the economy.

Meanwhile, the reverse repo rate is the interest rate at which the RBI borrows short-term funds from commercial banks. It is one of the tools used by the central bank to manage liquidity in the financial system. Banks often park surplus funds with the RBI under this window because it is safe and allows them to earn interest on idle money.

To understand the repo rate, think of it like this: when individuals borrow money from banks, they pay interest on the principal amount – this is the cost of credit. In the same way, banks borrow funds from the RBI during periods of cash crunch and pay interest on those borrowings. This interest rate charged by the RBI is known as the repo rate.

Technically, the term “repo” is short for Repurchase Rate. Under this arrangement, banks borrow money from the RBI by pledging eligible securities such as Treasury Bills as collateral. These securities are sold to the RBI with an agreement to repurchase them later at a predetermined price. In simple terms, banks receive cash to meet short-term needs, while the RBI holds the securities as assurance.

Changes in the repo rate play a critical role in the economy. By adjusting this rate, the RBI aims to control inflation, influence borrowing and spending behaviour, maintain adequate liquidity in the banking system, and support overall economic growth.

Repo Rate Trend in 2025

Throughout 2025, the RBI followed a clear easing trajectory to support economic growth. The repo rate stood at 6.5 percent in December 2024 and was cut to 6.25 percent in February 2025, followed by a further reduction to 6 percent in April 2025. The RBI then lowered the repo rate to 5.5 percent in June 2025 and maintained it at the same level in August 2025. Most recently, in December 2025, the central bank announced a 25-basis-point cut, bringing the repo rate down to 5.25 percent.

In its December 2025 policy meeting, the Monetary Policy Committee (MPC) unanimously voted for the rate cut, while five out of six members chose to maintain a neutral policy stance. This marked the fourth rate adjustment in the year and reinforced the RBI’s accommodative approach to monetary policy.

Impact of Repo Rate Changes

The repo rate is one of the most influential tools of India’s monetary policy, used by the RBI to manage money supply, inflation, and liquidity in the economy. Changes in the repo rate directly affect banks’ borrowing costs – when the repo rate rises, borrowing becomes more expensive for banks, and when it falls, funding costs ease, influencing overall credit availability.

While most economists had anticipated a 25-basis-point repo rate cut following October’s record-low inflation of 0.25 percent, the stronger-than-expected GDP growth of 8.2 percent in the second quarter moderated expectations of immediate easing. Retail inflation eased further in November 2025, registering at 0.7 percent – the second-lowest level ever recorded – following October’s reading, which marked the lowest inflation rate in the series.

When Inflation Rises: During periods of elevated inflation, the RBI typically raises the repo rate to curb excess liquidity in the system. Higher borrowing costs discourage businesses and industries from taking fresh loans, slowing investment activity and reducing the flow of money in the economy. This moderation in demand helps cool inflationary pressures, even though it may temporarily dampen economic growth.

When Liquidity Needs Support: Conversely, when economic activity needs a boost, the RBI lowers the repo rate to inject liquidity into the market. Cheaper borrowing encourages businesses to invest and expand, while banks become more willing to lend due to lower funding costs. As credit becomes more accessible, the money supply increases, supporting higher economic growth and improved business sentiment.

Interest Rates and Stock Markets: Both of them generally move in opposite directions. When the central bank raises the repo rate, equity markets often react negatively. Higher borrowing costs discourage businesses from expanding, slow economic growth, and weigh on corporate profits and future cash flows, leading to pressure on stock prices.

Tracking repo rate movements goes beyond following policy announcements – it offers insight into India’s broader economic strategy. These changes reflect how the central bank balances growth, inflation, employment, and financial stability, while also responding to global and domestic economic challenges.

For individuals and businesses, staying informed about repo rate changes can help guide smarter financial decisions. Whether it’s choosing the right time to lock in fixed deposits, reassessing loan strategies, or adjusting investment portfolios, understanding interest rate cycles can make a meaningful difference in long-term financial planning.

Written by Shivani Singh

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