RESERVE BANK OF INDIA MONETARY POLICY DECEMBER 2025.

Reserve Bank of India ( RBI) through its Monetary policy Committee (MPC  )  chaired by RBI Governor Sanjay Malhotra decided to reduce the repo  rate by 25 basis points to reach 5.25% from already existing 5.50%. MPC conviction is that headline inflation will stay benign for the next 6-9 months and hence the unanimous decision on repo rate came.Repo rate refers  to the interest rate at which RBI lends short term funds to banks against Government securities. Reduction  in repo rates directly reduce the cost of borrowing, lending rates and likely to boost overall economic activity. Changes in repo rate  as a monetary tool is likely to impinge on liquidity, inflation and flow of credit in the economy. Obviously when banks require short-term funds it is supplied by RBI at prevailing repo rate and in turn commercial banks pledges government securities as per the interest rate charged. 

IMPACT  OF REDUCTION IN REPO RATE 

When repo rate is reduced it will lead to an increase in liquidity in the economy.Cheap monetary policy not only result in cheaper bank loans but also lower interest rates that could benefit all segments of the society and economy namely consumers, households,producers, business sectors, external sector and Governments.

 Households are encouraged to purchase homes , automobiles, consumer durable etc depending on their credit worthiness. Business investment can be extended to new projects or expanding existing projects.Support to agriculture and allied activities, micro small and medium enterprises, Startups etc .can be effectively utilized due  to reduction in repo rate. Increased liquidity leads to more money supply accelerating banking operations and credit flows.Consumer confidence is also elevated due to cheaper credit available to spend and invest. In short  lowering of repo rate is expected to promote economic growth through increased borrowing, expenditure and investment which in turn stimulate further growth. 

 Apart from Repo rate reduction RBI decided to purchase government bonds worth ₹1 lakh crore  through open market operations (OMO) .F further 5 billion US$ buy - sell swap is another decisive effort to restore durable liquidity and stabilise  currency markets after the rupees sharp depreciation. Through this Dovish approach RBI has struck  a balanced policy that reduces borrowing costs while shoring up financial conditions , According to some Industrialists very low level of inflation indicate  room for additional 25 basis point repo rate cut potentially taking the rate to 5%.RBI estimate showed 2025-26 real GDP growth at 7.3% and consumer inflation at lower level RBI 's tolerance range of 2%.The overall reductions in the repo rates during 2025-26 reduced by 100 basis points from 6.25 to 5.25% .

SOME  APPREHENSION ABOUT  POLICY AND ECONOMY. 

As expected there were significant observations against economic policy in general and monetary policy in particular, With continued global uncertainties ,India's reliance on domestic growth drivers growth  orientation of monetary policy seems to be desirable, It will facilitate huge investment by the private sector..It would also reduce the cost of incremental borrowing by the Government particularly if it continue to  maintain fiscal consolidation path.If inflation continues to be low real interest rate would remain reasonable and deposit would not be affected adversely , consequentlly India will continue to rely on "the role of domestic demand to support growth". 

Prof.Arun Kumar prominent JNU retired professor observed that the official estimate of GDP is approximately 45% less than captured by government officials. Even though unorganized sector accounts for 94% of jobs and 45% of output in India it is not captured correctly in both official calculations and alternative estimates.According to Kumar growing discrepancy indicate systematic issues in the data and India's official GDP which has risen to $3.8 trillion as against actual figure of about $ 2.5 trillion due persistent overestimation of the unorganized informal sector. According to him the issue has been building overtime and is compounded by outdated data bases including census data used in quarter.It may be noted that recently International Monetary Fund (IMF) has retained India's National Accounts and Government finance data at " C " grade in 2025 Data Adequacy Assessment indicating shortcomings that hamper effective economic surveillance, particularly in th context of outdated base year.In fact some margin of error is bound to happen in data collection and analysis of macro data. But let us hope that it is not like- "some  milk in water instead of some water in milk" in the collection of macroeconomic data,  selection of  base period ,analysis and interpretation .