Last Updated:
The MPC trimmed the benchmark repo rate by 25 basis points, bringing it down from 5.50% to 5.25%, the fourth such reduction in the last five meetings
RBI’s repo rate cut, while technical on paper, cascades quickly through the economy.
The country’s financial corridors were abuzz on Friday, December 5, as the Reserve Bank of India‘s Monetary Policy Committee (MPC) wrapped up its 3-day deliberations with a decisive shift in stance. The MPC trimmed the benchmark repo rate by 25 basis points, bringing it down from 5.50% to 5.25%, the fourth such reduction in the last five meetings, underscoring the apex bank’s continued push to ease financial conditions.
A repo rate cut, while technical on paper, cascades quickly through the economy. It shapes everything from the monthly EMIs households pay to the pace at which companies record sales. By altering the cost of borrowing for banks, the RBI effectively nudges consumers to either spend or save, thereby controlling liquidity flowing through the system.
When borrowing costs rise, EMIs climb. A home loan priced at 8%, for instance, immediately steps up to 8.25% after a comparable hike in the policy rate. Households tend to tighten their wallets, delaying purchases and opting instead for safer avenues such as fixed deposits, which simultaneously offer better returns during high-rate cycles. For companies, this cools demand, drags down earnings, and pulls share prices lower, a pattern that short sellers and intra-day traders often seize as an opportunity.
Today’s rate cut set off the opposite chain reaction. Lower EMIs lighten household budgets, making big-ticket purchases, from cars to apartments, more attractive. With deposit rates drifting downward, retail savers commonly reallocate money towards equities in search of better returns. This sentiment shift was evident across Dalal Street, where the Sensex climbed 0.52% to close at 85,712, while the Nifty advanced 0.59% to settle at 26,186.
The sectoral ripple effect was equally telling. Interest-rate-sensitive counters such as banking, auto, real estate and FMCG registered the sharpest movements, while technology stocks, typically less reliant on domestic consumption, remained comparatively insulated. Historically, rate hikes buoy bank shares due to improved deposit inflows but simultaneously hammer real estate and automobile counters. FMCG scripts, too, tend to soften as household budgets shrink. In a rate-cut environment, these trends reverse; banks often slip, while auto and realty names rally and consumer stocks post healthy gains.
At its core, the logic remains simple. Lower rates make loans cheaper, spur spending, lift corporate profits and push markets higher; higher rates do the reverse. Yet, analysts caution that the market does not always respond instantly. At times, investors digest policy moves over several sessions before repositioning themselves.
For retail participants, the day’s events serve as a reminder that policy-driven rallies and corrections can mask deeper market dynamics. Large institutional investors often exploit these swings, leaving smaller players vulnerable if they trade purely on headlines. Even after an MPC announcement, experts advise a closer look at company fundamentals before taking a call.
Click here to add News18 as your preferred news source on Google. December 05, 2025, 20:38 IST
Read More
