The RBI’s monetary policy committee unanimously voted to cut the repo rate by 25 basis points amid uncertainties in a tumultuous global order. The RBI panel also maintained its neutral stance.
With GDP growth of over 8.2 percent in the July-September 2025 quarter and ultra-low inflation of 0.25 percent in October, the rate cut is ‘exceptional’, SBI Research said in the report.
Historical data from other countries shows that in Britain, China and Indonesia there have been minimal cases where central banks have cut rates even when GDP growth was high, the report said.
However, all these cases of interest rate cuts were due to very high interest rate levels, even though inflation was also much higher.
For example, it was cited that the British Chancellor of the Exchequer, Anthony Barber, in the early 1970s “took a storm on growth” by cutting interest rates when inflation was 11 percent and growth was 12.5 percent.
Similarly, the Bank of Indonesia had made successive cuts in the period 1995-1997 prior to the Asian crisis, when growth was 8.6 percent and inflation 7.4 percent.
“It is the only China to have cut spending in 2012 and 2015, when inflation averaged 1.8 percent and growth 7.4 percent,” the report said.
On the inflation front, with continued lower food inflation, higher kharif production, healthy rabi sowing, adequate reservoir levels and favorable soil moisture, the RBI has reduced the inflation projection for 2025-26 to 2.0 per cent from October’s estimate of 2.6 per cent and February’s estimate of 4.2 per cent.
“We forecast FY26 inflation at 1.8 per cent and FY27 inflation at 3.4 per cent. With such an unprecedented level of downward revisions and further prospects of downward revisions, the RBI has kept the door open for future interest rate decisions. However, for now, the repo rate at 5.25 per cent will remain lower for longer,” the SBI Research report said.
The RBI has also revised real GDP growth for 2025-26 and is now projected at 7.3 percent. Real GDP growth for the first quarter of 2026-2027 is projected at 6.7 percent and for the second quarter at 6.8 percent.
“However, ongoing tariff and trade policy uncertainties will impact external demand for goods and services,” the report said.
“Prolonged geopolitical tensions and volatility in international financial markets, driven by investor risk sentiments, also pose downside risks to growth prospects.
“SBI Research expects GDP growth of over 7 per cent in both the third and fourth quarters, with growth of 7.6 per cent in 2025-26.
RBI Governor Sanjay Malhotra on Friday characterized India’s current macroeconomic moment as a “rare Goldilocks period”, currently marking high economic growth and exceptionally low inflation.
“The economy witnessed robust growth and mild inflation. We enter the new year with hope, strength and determination to further support the economy and accelerate progress,” the central bank governor said.
Published on December 6, 2025
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