MPC meeting: RBI could cut repo rate by 25 bps in December meeting, say economists

India’s upcoming monetary policy decision has attracted significant attention as recent polls from Reuters and Informist show a clear divide among economists on the Reserve Bank of India’s next step on interest rates. Strong GDP growth and low inflation have made the outlook uncertain ahead of the monetary policy committee meeting on December 5. The pace of economic growth and record-low inflation have created a complex scenario for policymakers.

A Reuters poll conducted before the release of the September quarter GDP data found that most economists expected a 25 basis point cut in the policy repo rate to 5.25 per cent at the December meeting, followed by a pause through 2026. Similarly, an Informist poll showed that 17 out of 20 economists surveyed anticipate a repo rate cut at the end of the three-day meeting. Sixteen predicted a 25 basis point reduction, while India Ratings and Research expected a cut between 25 and 50 basis points.

India’s economy grew by 8.2 per cent in the July–September quarter, well above expectations, leading some analysts to raise their full-year growth forecasts above 7 per cent. This growth is close to India’s estimated potential of 6.5-7 per cent, which is considered the maximum sustainable rate without causing inflation. The RBI projects GDP growth of 6.8 per cent for FY26, with a slowdown to 6.4 per cent in the December quarter and 6.2 per cent in the March quarter.

Retail inflation in India fell to a record low of 0.25 per cent in October and is expected to remain low in the coming months. At this inflation level, the neutral real rate — the repo rate minus inflation — remains high but is expected to decline based on forward inflation. The RBI forecasts inflation at 4.5 per cent for the first quarter of FY27, estimating the neutral real rate to be between 1.4-1.9 per cent.

Barclays pointed out that growth has peaked and expects the second half of FY26 (October to March) to see lower growth than the first half (April to September). This view aligns with the RBI’s forecast of slowing growth as FY26 progresses.

Gaura Sen Gupta, chief economist at IDFC FIRST Bank, said the December RBI policy decision will be challenging due to resilient growth and very low inflation. Gupta added that the RBI is likely to maintain the current stance as there is limited room for easing, which should be used only if growth risks worsen.

The September quarter GDP data is a key factor for the MPC’s decision, with some economists revising their rate forecasts based on the latest figures. Barclays noted that the strong GDP print makes a rate cut unlikely at the upcoming meeting.

Supporters of a rate cut argue that real policy rates should be adjusted to reflect the low inflation outlook. A Prasanna, chief economist at ICICI Securities Primary Dealership, said inflation has fallen more than expected and remains benign, so a 25 basis point cut is likely to align the real policy rate with the inflation outlook.

Since early 2025, the MPC has cut the repo rate by 100 basis points: 25 in February, 25 in April, and 50 in June. The rate has been steady at 5.50 per cent since June, with a neutral policy stance. Most economists expect rates to remain unchanged after December, though some see potential for further easing in February if inflation stays below the RBI’s 4 per cent target.

External factors, including a 50 per cent US import tariff on Indian goods, have only made matters more complex.

(With agency inputs)