RBI could opt for more rate cuts if global challenges hit domestic growth: CareEdge Report

The Reserve Bank of India (RBI), after implementing a 25 basis point policy rate cut in December, is expected to keep open the option for further monetary easing if global headwinds severely dampen India’s growth prospects, a CareEdge Ratings report shows.

The report notes that the government has already provided fiscal stimulus through rationalization of GST rates and lower income tax burden. However, as room for further budget support is limited, responsibility may shift to monetary policy if growth conditions deteriorate.

The report said, “Given the limited scope for further fiscal stimulus, the RBI is likely to keep open the option for further rate cuts if global headwinds severely dampen growth prospects.” The current monetary policy decision comes at a time when the domestic economy has held up relatively well in the first half of the year and inflationary pressures remain mild.

Taking solace from very low inflation, the RBI has cut the policy repo rate to further boost growth momentum in the coming months. The report notes that this policy support is positive, especially as some of the factors that supported growth in the first half of the year, such as the festive season rebound and early exports, are expected to gradually disappear. At the same time, external conditions remain challenging, with exports under pressure due to high US tariffs.

The report said that while there is room for another 25 basis point rate cut based on the inflation outlook, the Monetary Policy Committee (MPC) is likely to pause and maintain policy space. The report highlighted that maintaining this ‘firepower’ will be crucial as fiscal space remains limited given the government’s focus on consolidation and the stimulus already provided by the rationalization of VAT and lower income tax burdens.

With risks from global slowdown and trade-related pressures still present, the RBI is expected to take a cautious approach while keeping the door open for future rate cuts in case growth loses momentum. The Reserve Bank of India’s Monetary Policy Committee (MPC) cut the policy repo rate by 25 basis points to 5.25 percent at its December 5 meeting. The repo rate is the rate at which the RBI lends money to commercial banks, and lowering it is aimed at boosting liquidity and supporting economic growth.

After this revision, the Standing Deposit Facility (SDF) rate, which currently stands at 5.00 percent, will be the rate at which banks can deposit their excess funds with the RBI without providing any collateral. The Marginal Standing Facility (MSF) rate, at 5.50 percent, allows banks to borrow money overnight from the RBI in case of an urgent shortage of funds, and is generally used as a last resort.

The bank rate, also 5.50 percent, is the RBI’s long-term lending rate to commercial banks and serves as a benchmark for other interest rates and certain penalties. Meanwhile, the Fixed Reverse Repo Rate remains at 3.35 percent and refers to the interest rate at which the RBI borrows money from banks, thereby managing liquidity by influencing how much money banks hold with the central bank versus lending in the market. Together, these interest rates form key components of the RBI’s monetary policy framework, guiding liquidity, inflation control and overall financial stability.

Published on December 8, 2025