RBI May Deliver Final 25 bps Rate Cut in December; Repo Rate Likely at 5.25% by End-2025

RBI planning for a 4th Repo Rate Cut in December 2025

Do small savings really matter for a country’s economy? 

For the Reserve Bank of India (RBI), even tiny changes in inflation are now important. After a surprise 50 basis point (bps) rate cut in June, all eyes are on what might be the last rate cut of 2025.

HSBC Global Research, in its July 2025 report, expects the RBI to cut the repo rate by another 25 bps in December. This would bring the rate down to 5.25 per cent by the end of the year. The prediction comes as inflation cools and money becomes easier to borrow after a tight lending period.

June Cut Signals a Change in RBI Strategy

On June 6, the RBI surprised markets with a bigger-than-expected 50 bps rate cut, lowering the repo rate from 6.00 to 5.50 per cent. 

It also announced a 100 bps cut in the Cash Reserve Ratio (CRR), to be done in phases from September to November 2025. This move added much-needed money into the banking system.

The June Monetary Policy Committee report also lowered the retail inflation estimate for FY26 to 3.7 per cent while keeping the GDP growth forecast steady at 6.5 per cent. 

The RBI’s message was clear: there’s limited room for more action, and future steps will depend fully on new data.

Repo Rate Action Timeline

With two policy meetings, August and October, left before the December review, HSBC expects the RBI to maintain the status quo in the interim. The central bank has already signalled a wait-and-watch approach.

What Inflation Indicators Reveal?

Falling prices are a major factor in the rate cut forecasts. June consumer Price Index (CPI) inflation was around 2.3 per cent, much below the central bank’s comfort zone of 4 per cent. 

Read More - Will Inflation Lead to Another Rate Cut? RBI Governor Sanjay Malhotra Shares His View

The Wholesale Price Index (WPI) also recorded a negative 0.1 per cent year-on-year increase in June.

Food prices have dropped for six months in a row, falling 0.6% in June. This price fall has eased pressure on consumers and may lead to more supportive policies.

What makes this phase different is low core inflation happening alongside rising gold prices. HSBC said gold went up nearly 36% in June compared to last year. This affected some parts of core inflation but didn’t change the overall trend of low inflation.

The Role of CRR and Liquidity Easing

One big step many missed was the CRR cut. The RBI said it would lower the CRR from 4% to 3% by November, in stages. This move will add ₹2.5 lakh crore into the banking system, helping banks reduce loan rates later.

Together with the rate cuts, this shows a two-way push to ease the economy, making loans cheaper for businesses, small firms, and individuals.

Future Projections and Market Response

As per HSBC’s research, average retail inflation over the next six months is expected to remain close to 2.5 per cent. This provides further space for the December 25 bps cut, bringing the terminal repo rate to 5.25 per cent by year-end.

Meanwhile, the RBI has not changed its stance from “neutral”, implying it is not in a hurry to return to an easing cycle unless data warrants it. In its latest communication, the central bank noted that decisions would remain data-driven and avoid sharp moves without enough economic backing.

Conclusion

The central bank is aiming for a smooth and steady slowdown in interest rates. If inflation stays below 4 per cent and banks keep lending more as liquidity improves, one final 25 basis point rate cut could wrap up this easing cycle.

After that, the RBI is likely to shift its attention to maintaining financial stability and watching global market trends as 2026 begins.

With the next Monetary Policy Committee (MPC) meeting scheduled for early August, many in the market expect the RBI to keep rates unchanged for a while. However, if inflation starts rising again or there’s an unexpected global event, the central bank may have to adjust its plans.

As things stand now, most signs suggest the RBI could go for one last rate cut in December, just enough to lower borrowing costs slightly before taking a long pause.
 

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