Close call, but RBI MPC could cut repo by 25 basis points, say economists

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is likely to cut the policy repo rate by 25 basis points (bps) to 5.25 percent on December 5 on favorable inflation and expected slowdown in GDP growth in the second half of FY26, nine of the 15 economists surveyed by the Business Line said.

“This year, the story has been about overshooting growth and undershooting inflation. Hence, the upcoming interest rate decision remains a close call. But given the continued risks to growth (in H2FY26) and inflation expected to remain well below 4 per cent till Q3 FY27, we see there is still a chance of a further 25 basis point rate cut with the upcoming policy,” said Sakshi Gupta, chief economist at HDFC Bank.

Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, said the significantly higher-than-expected GDP growth in the second quarter of 2026 was broad-based but stemmed from a very low deflator. Single-digit nominal GDP growth continues to point to tepid underlying activity, she says. She adds that despite high real GDP growth, the bank maintains its expectations of a 25 basis point repo cut as the inflation trajectory is favorable.

India’s GDP grew 8.2 percent in the second quarter of 2026, the highest level in the past six quarters, supported by robust growth in the manufacturing and services sectors. Retail inflation, as measured by the consumer price index (CPI), meanwhile fell to 0.25 percent in October 2025, the lowest in the current CPI series.

“We expect the MPC to cut the repo rate by 25 basis points, enabled by a favorable inflation outlook based on subdued food prices and realized inflation consistently below the RBI’s baseline forecast.We expect that the MPC will maintain its neutral position. Strong growth momentum and bottoming inflation mean there is no need to change the stance at this stage,” said Gaurav Kapur, chief economist, IndusInd Bank.

Rajani Sinha, chief economist at CareEdge Ratings, said the RBI could cut the policy rate by 25 basis points at its December meeting as inflation is likely to be favorable, supported by favorable agricultural prospects, stable crude oil prices and subdued price pressures due to excess capacity in China.

“While GDP growth reached 8.2 percent in the second quarter, we expect it to decline to around 7 percent in the second half as the effects of early exports fade and post-holiday consumption softens. In the fourth quarter of FY26, the low base effect will decline and the deflator will also increase from current low levels,” she said.

A plea for no interest rate reduction

Madan Sabnavis, chief economist at Bank of Baroda, said given that monetary policy is forward-looking and inflation is likely to be around 4 percent in Q4FY26 and FY27, giving a real repo rate of 1-1.5 percent, the policy rate appears to be at a reasonable level. “Under these circumstances, we do not think there should be any change in the policy rate. However, since liquidity, even if in surplus, is at the lower end of 1 percent of the NDTL limit, there could be a case to announce some open market operations,” he said.

RBL Bank Chief Economist Anitha Rangan said the bank does not expect a rate cut at the next meeting as external factors and currency pressures are high.

“Having spent over $20 billion in the spot market in October and November (my estimate excluding the impact of valuation), a rate cut would be a waste of reserves. Also, growth is not necessarily slow. Moreover, rate cuts will not necessarily revive growth; other policies have much more impact. With banks having trouble with deposits, incremental transmission will be a problem,” she said.

Published on November 30, 2025