As the Reserve Bank of India (RBI) prepares to announce its monetary policy next week in the backdrop of benign inflation, stable liquidity, and robust macroeconomic conditions, expectations are high that the central bank will cut its repo rate by 25 basis points to 5.25%.
The repo rate refers to the interest at which the central bank lends short term funds to commerical banks and is considered a benchmark for all lending rates in the economy. A basis point is one-hundredth of a per cent.
The meeting of the RBI Governor Sanjay Malhotra-headed Monetary Policy Committee (MPC) is scheduled from December 3 to 5 and the repo rate decision will be announced on December 5. The RBI has held rates at 5.5% since August after a cumulative 100 bps of cuts in the first half of the year.
A sharp fall in food prices and GST rate cuts have driven consumer inflation to a record low of 0.25% in October, giving the central bank room to support weak consumption.
“We expect the RBI to announce a 25-basis-point rate cut, supported by benign headline inflation. Food prices are likely to remain in deflation, keeping overall inflation comfortably below target through the end of the fiscal year, aided further by the pass-through of GST rate cuts,” said Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group.
Nearly 80% of economists, 62 of 80, in a November 18-26 Reuters poll forecast the RBI would lower the repo rate to 5.25% at its December policy meeting. The remaining 18 forecast no change.
While the deflation in food prices is expected to be temporary, core inflation — excluding the impact of gold — is running below the 4% target. Hajra believes this combination provides the MPC with room not only to cut rates by 25 bps in this policy but also to adopt a more accommodative liquidity stance to strengthen the transmission of policy easing.
However, pressures from a widening goods trade deficit and continued foreign portfolion investor outflows have weighed on the rupee, presenting a counterpoint to immediate monetary easing. The rupee hit a fresh low of 89.49 against the dollar on Friday.
“Nonetheless, the RBI retains multiple tools beyond the policy rate to manage external balances and currency stability, even as it guides monetary conditions toward greater accommodation,” said Hajra.
The RBI repo rate cut expectations come ahead of the announcement of India’s Q2 GDP data later today on November 28. India’s economic growth will likely stay robust at 7.2% in the July-September quarter, slightly lower than 7.8% in the preceding one, a poll of 15 economists by Mint showed.
Expectations on Dalal Street are also high for a rate cut by Governor Sanjay Malhotra-led MPC next week.
“As the RBI MPC convenes this month, all indicators point toward a favourable environment for a calibrated rate cut. Inflation has softened significantly, liquidity conditions have stabilised, and economic activity remains robust — creating an opportunity for the MPC to shift toward a more growth-supportive stance,” said Mayur Modi, Co-founder, and Co-CEO of Moneyboxx Finance.
According to him, reduction in the repo rate at this stage could help ease financing costs, stimulate consumption, and strengthen investment sentiment across key sectors, particularly as the economy enters a high-demand cycle.
However, Manoranjan Sharma, Chief Economist at Infomerics Ratings expects the MPC to hold the repo rate steady in December because while the growth-inflation trade-off is the determining characteristic of the monetary policy, one data point is insufficient.
“The RBI focuses on durable, broad-based disinflation, not a single-month dip driven by favourable base effects and easing food inflation. Food inflation risks persist, with volatile vegetables, cereals, pulses, and climate-linked risks (El Niño/La Niña transitions) remaining a concern. Inflation expectations have softened but not fallen decisively. Growth remains resilient (strong GDP, robust services, capex acceleration), reducing pressure to ease. In view thereof, a December rate cut is unlikely, leading to a prolonged pause,” said Sharma.
October RBI Policy Highlights
In its October policy, the RBI MPC unanimously voted to keep the repo rate unchanged at 5.50%. The rate-setting panel also maintained the policy stance as ‘Neutral’. Thus, the Standing Deposit Facility (SDF) rate remained at 5.25%, while the Marginal Standing Facility (MSF) rate was at 5.75%.
The RBI raised FY26 GDP growth estimates to 6.8% from 6.5% earlier, and also reduced FY26 CPI inflation forecast to 2.6% from 3.1% earlier.
RBI Governor Malhotra also proposed a slew of measures for the banking sector to improve flow of credit into the system, reduce cost of infrastructure financing by NBFCs, measures for internationalising Indian Rupee, strengthen export sector, simplify foreign exchange management and enhance consumer satisfaction.
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