Rate Cut Or Status Quo? RBI To Announce Monetary Policy On Friday Amid Strong GDP, Low Inflation

RBI MPC Meeting To Start On December 3: The RBI’s Monetary Policy Committee (RBI MPC) is going to meet for three days this week, between December 3 and December 5, to review the country’s monetary policy. Experts are divided on the RBI’s move this week between a rate cut and a status quo. While a majority still expect an interest rate reduction, some experts believe the central bank is likely to keep the rate unchanged in the backdrop of better-than-expected GDP growth of 8.2 per cent in the second quarter.

RBI Governor Sanjay Malhotra is scheduled to announce the decision of the rate-setting panel on December 5, the last day of the three-day MPC meeting.

The retail inflation, based on the Consumer Price Index (CPI), is ruling below the 2 per

cent lower band mandated by the government for the last two months. In October, the CPI inflation had stood at a multi-decade low of 0.25% amid GST rate cut, favourable base effect and a fall in prices of food items like fruit and vegetables.

The central bank started its rate-easing cycle in February last year. It has cumulatively reduced the repo rate by 100 basis points in successive policy announcements to 5.5 per cent, before hitting the pause button in August.

This time, some experts believe that the RBI may continue with the pause on interest rates as economic growth has picked up, sustained by fiscal consolidation, targeted public investment, and various reforms, such as the GST rate cut.

However, according to some experts, the RBI may trim the benchmark lending rate by 25 bps in its forthcoming monetary policy meeting, as inflationary pressures are subdued.

Rate Cut Vs Status Quo: What Experts Say

This year, the story has been about growth overshooting and inflation undershooting, said a HDFC Bank report.

“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 per cent until Q3 FY27, we see that there may still be a chance of another 25bps rate cut at the upcoming policy,” it said.

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

On what the RBI’s MPC may decide in the forthcoming policy, 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 per cent plus region, yielding a real repo rate of 1-1.5 per cent, 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.”

Dharmakirti Joshi, chief economist of Crisil, said the primary driver behind the headline inflation falling below the lower end of the RBI’s target range of 2-6 per cent has been food inflation, although fuel inflation has also remained subdued.

Excluding gold, core inflation stood at 2.6 per cent in October, supported by GST cuts, he said.

“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.

Guidance Likely To Be Neutral Or Dovish

Experts believe the guidance is expected to be neutral to dovish, providing an assurance of adequate liquidity and a hint at further scope for rate reduction with evolving growth dynamics.

On expectations from the meeting of the 58th rate-setting panel, Mandar Pitale, Head-Financial Markets, SBM Bank (India), expects the MPC to maintain the status quo in the December policy review.

“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,” he said.

Aditi Nayar, chief economist of ICRA opined that with the Q2 FY2026 GDP growth exceeding 8 per cent, a rate cut in the December 2025 MPC review now appears unlikely, notwithstanding the series-low CPI inflation print for October 2025.

The government has mandated the RBI to ensure that retail inflation remains at 4 per cent with a margin of 2 per cent on either side.

(With PTI Inputs)