The 2025 rate cuts: how the RBI went from 6.50% to 5.25%, and why it's reversing

After two years frozen at 6.50%, the RBI spent 2025 doing the opposite of 2022: cutting, and cutting hard.

Four cuts in one year

• 7 Feb 2025−25 bps to 6.25%. The first cut in nearly five years.
• 9 Apr 2025−25 bps to 6.00%.
• 6 Jun 2025−50 bps to 5.50%. A "jumbo" cut, double the usual size.
• 5 Dec 2025−25 bps to 5.25%, the lowest in over three years. The vote was unanimous.

In total, 125 basis points came off the repo rate in 2025.

Why the RBI felt safe cutting

Inflation collapsed. Good harvests and falling vegetable prices pulled retail inflation down through 2025, to a record low of 0.25% in October 2025 on the old CPI series. In December, the RBI cut its inflation forecast for 2025–26 to just 2%, the bottom of its target band.

Growth, meanwhile, was strong: about 8% in the first half of 2025–26, and the RBI raised its full-year forecast to 7.3%. Low inflation with solid growth gave it room to make borrowing cheaper. The RBI's message in December was that if inflation stayed benign, "policy rates are likely to be low rather than high."

What borrowers got

Then it turned

The low point didn't last. Under the new CPI series, inflation rose every month of 2026, from 2.74% in January to 5.54% in September. Oil crossed $100 a barrel amid conflict in the Gulf, the rupee slid towards 97 to the dollar, and the US Federal Reserve raised rates in September 2026.

On 7 October 2026, the RBI raised the repo rate back to 5.50% and changed its stance to "calibrated tightening". The hike itself was unanimous; two of the six members wanted to keep the stance neutral.

What it tells us

• Cycles are shortThe RBI went from its last cut to its next hike in ten months. Locking into a long fixed-rate product on the assumption that rates will keep falling can backfire.
• Imported shocks winDomestic inflation was tame. It was oil, the rupee and the Fed, all from outside India, that forced the reversal.
• Next stopThe RBI has said cuts are off the table for now. Its next meeting is 2–4 December 2026.

Read the full story of the October 2026 hike and September's inflation jump.