The Reserve Bank of India’s Monetary Policy Committee (MPC) has reduced the repo rate by 25 basis points, bringing it down from 5.5% to 5.25%.
Governor Sanjay Malhotra announced the decision on Friday.
This reduction means home loans, car loans, and personal loans will now become cheaper.
As a result, EMIs will reduce, and people will be encouraged to save more.
The previous MPC meeting on October 1 had kept the repo rate unchanged at 5.5%.
Economy Enters a ‘Goldilocks’ Phase
While presenting the policy review, Governor Malhotra said that inflation has softened noticeably since October 2025.
Strong growth and moderate inflation together indicate that the economy has entered a rare “Goldilocks zone.”
But what exactly does Goldilocks mean?
In economic terms, a Goldilocks period is when growth remains steady and inflation stays under control.
The term comes from the story “Goldilocks and the Three Bears,” where Goldilocks chooses porridge that is neither too hot nor too cold.
Similarly, the Indian economy right now is growing at a healthy pace—not too slow to cause recession, and not too fast to push inflation up.
This balance is considered ideal for long-term stability.
How Much Has the Repo Rate Fallen This Year?
Between February and June, the RBI reduced the repo rate by a total of 100 basis points, bringing it down from 6.5% to 5.5%.
In the policy meetings that followed in August and October, no changes were made.
Now, with the latest 25 bps cut, the repo rate stands at 5.25%.
What Is the Repo Rate and Why Is It Important?
The repo rate is the interest rate at which the Reserve Bank lends money to commercial banks.
When the repo rate goes up, loans become more expensive for banks, which means costlier loans for customers.
This leads to higher EMIs on home, car, or personal loans.
RBI typically increases the repo rate to control inflation.
When inflation is high, raising the rate helps reduce borrowing and cools down demand.
When inflation is moderate, as it is now, the RBI may cut the rate to support growth and make loans affordable for households and businesses.