RBI cuts policy interest rates by 25 basis points to support 'goldilocks' economy; EMIs may fall

New Delhi: The Reserve Bank of India (RBI) on Friday lowered key policy interest rates by 25 basis points that may make home, auto and other loans cheaper and boost consumption as inflation has eased to decadal low.

Repo rate, or the interest rate at which the central bank lends money to commercial banks, has been cut from 5.50% to 5.25%. Other policy rates have also been adjusted accordingly. Standing deposit facility rate has been lowered to 5% while the marginal standing facility rate and the Bank Rate have been cut to 5.5%.

These policy interest rates have been lowered cumulatively by 125 basis points or 1.25 percentage points since February. The RBI’s action has led to substantial reduction in interest rates on home, auto and other loans. Commercial banks lending and deposit rates are guided by these RBI policy rates.

The six-member Monetary Policy Committee (MPC), chaired by RBI Governor Sanjay Malhotra, took a unanimous decision to lower the interest rates.

The MPC’s comes days after the government data showed a sharp acceleration in economic growth, boosted by consumption demands. However, decadal low inflation seems to have dominated the MPC’s decision.

“The growth-inflation balance, especially the benign inflation outlook on both headline and core, continues to provide the policy space to support the growth momentum. Accordingly, the MPC unanimously voted to reduce the policy repo rate by 25 bps to 5.25%,” Malhotra said.

India’s GDP growth accelerated to six-quarter high of 8.2% in July-September period, while Consumer Price Index (CPI) based retail inflation eased to a record low of 0.25% in October, as per the latest official data.

Malhotra termed the low inflation and high economic growth a “rare goldilocks period.”

“For the first time since the adoption of flexible inflation targeting (FIT), average headline inflation for a quarter at 1.7% in Q2:2025-26, breached the lower tolerance threshold (2%) of the inflation target (4%). It dipped further to a mere 0.3% in October 2025. On the other hand, real GDP growth accelerated to 8.2% in Q2, buoyed by strong spending during the festive season which was further facilitated by the rationalisation of the goods and services tax (GST) rates,” the Governor said.

The MPC also decided to continue with the neutral policy stance. This means the RBI will make future decisions on interest rates based on how inflation and growth move.

In an effort to restore durable liquidity the RBI has decided to purchase government bonds worth Rs 1 lakh crore through open market operations. The central bank has also announced a $5 billion Dollar-Rupee sell swap to stabilise the falling rupee.

“Together, the rate cut, neutral stance, and targeted liquidity interventions aim to sustain economic momentum while safeguarding price and financial stability,” said SBI chairman CS Setty.

Investors cheered the rate cuts. The benchmark Sensex jumped 447 points, while Nifty closed 153 points higher. There was strong buying support in financial and auto stocks.

Shailesh Chandra, Managing Director and CEO of Tata Motors Passenger Vehicles, said rate cuts along with GST rate rationalisation would further accelerate growth of the Indian auto industry.