RBI rate cut coming? Experts split as inflation hits rock bottom

Mumbai: The Reserve Bank of India may reduce the benchmark lending rate by 25 basis points in its upcoming monetary policy meeting, as inflationary pressures remain low. However, several experts say the central bank could keep rates unchanged in light of the better-than-expected GDP growth of 8.2 percent in the second quarter.

What is driving expectations of a rate cut?

The consumer price index based headline retail inflation has stayed below the 2 percent lower band mandated by the government for the past two months. This trend has strengthened expectations that the Monetary Policy Committee may opt for a 25-basis point cut in the repo rate.

The RBI began its rate-easing cycle in February last year. It has cumulatively lowered the repo rate by 100 basis points to 5.5 percent in successive policy decisions before maintaining a pause from August onwards.

Some experts say subdued inflation supports the possibility of a further reduction. According to a HDFC Bank report, “This year, the story has been about growth overshooting and inflation undershooting. Therefore, the upcoming RBI rate decision remains a close call. But given the lingering risks on growth (in H2) and inflation expected to remain well below 4 percent until Q3 FY27, we see that there may still be a chance of another 25bps rate cut at the upcoming policy.”

A research report from the State Bank of India’s economic research department stated that with strong GDP growth and minimal inflation, it is now for the RBI to communicate to broader markets the rate trajectory in this week’s MPC meeting, while continuing with the neutral stance.

Why do some experts believe a pause is likely?

Several economists believe the RBI could avoid a rate cut at this stage due to the improved growth outlook. They argue the central bank may prefer to wait and watch, particularly as the economy has gained momentum due to fiscal consolidation, targeted public investment, and reforms such as the GST rate cut.

Madan Sabnavis, Chief Economist at Bank of Baroda, said “it would be a close call on the repo rate. Given that monetary policy is forward-looking and inflation in Q4-FY26 and FY27 is likely to be in the 4 percent plus region, yielding a real repo rate of 1-1.5 percent, the policy rate appears to be at a fair level. Under these conditions, we do not think that there should be any change in the policy rate.”

Aditi Nayar, Chief Economist at ICRA, said that with Q2 FY2026 GDP growth exceeding 8 percent, a rate cut in the December 2025 MPC review now appears unlikely, despite the series-low CPI inflation print for October 2025.

Mandar Pitale, Head of Financial Markets at SBM Bank (India), expects the MPC to maintain the status quo in the December policy review.

He said, “This is in light of the need to attract interest rate-sensitive flows to support the BoP and to avoid aggravating the immediate issue on resource mobilisation for banks, as a rate reduction could move retail resources away from the banking sector.”

What do other analysts project?

Dharmakirti Joshi, Chief Economist at Crisil, said the primary driver of headline inflation falling below the RBI’s 2-6 percent range has been food inflation, while fuel inflation has also remained subdued. He noted that excluding gold, core inflation was 2.6 percent in October, supported by GST cuts.

“We anticipate a 25-basis point cut in the repo rate in December. While growth remains robust, a significant decline in retail inflation in October has created additional room for this adjustment,” Joshi said.

Experts widely expect policy guidance to remain neutral to dovish. They anticipate assurances of adequate liquidity alongside indications of further scope for rate reductions if growth dynamics shift.

Ashok Kapur, Chairman of Krishna Group and Krisumi Corporation, said that with inflation hovering at record lows, the RBI “unquestionably has the policy space to consider a 25-bps rate cut.” He added that the housing and allied sectors, as well as the broader economy, are already benefiting from GST rationalisation and the RBI’s earlier 100-basis point rate cuts.

“A further reduction at this juncture would undoubtedly strengthen the ongoing growth momentum,” Kapur said.

When will the decision be announced?

The Monetary Policy Committee will meet from 3 to 5 December 2025. RBI Governor Sanjay Malhotra is scheduled to reveal the rate-setting panel’s decision on 5 December.

The government has mandated that the RBI keep retail inflation at 4 percent, with a margin of 2 percent on either side.

PTI inputs