MPC Minutes
Minutes show low CPI allowed MPC's Dec cut; next move to be data dependent
This story was originally published at 19:27 IST on 19 December 2025
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NEW DELHI – A low CPI inflation reading and expectations of GDP growth slowing down ahead allowed the Reserve Bank of India's Monetary Policy Committee to lower interest rates in December, minutes of the committee's Dec. 3-5 meeting, released Friday, showed. MPC members gave little forward guidance in the minutes and said the committee will remain data dependent going ahead.
On Dec. 5, the MPC in a unanimous decision lowered the policy repo rate by 25 basis points to 5.25%. The committee also retained the 'neutral' policy stance, but external member Ram Singh was of the view that the stance should be changed to 'accommodative'.
Singh, the minutes revealed, said that an accommodative stance was needed because of the "dormancy in the price momentum underlying headline CPI and CPI core", and also to support the growth momentum. Other members were in favour of retaining the stance as it provides the flexibility to remain data-dependent.
"As for the stance, I propose to retain it at neutral. In other words, let any future course of policy action be totally data dependent," RBI Deputy Governor Poonam Gupta said in the minutes.
MPC members agreed that the current inflation scenario and the projected trajectory is benign enough to warrant a rate cut in December. CPI inflation fell to a record low of 0.25% in October, which was the last inflation print available to the MPC as of Dec. 3-5.
"The current inflation rate is actually too low, breaching the lower bound in the flexible inflation targeting regime, especially if precious metals like gold are excluded," Nagesh Kumar, external member of the MPC, said. "Besides, too low an inflation rate is not healthy for a developing country like India, suggesting a demand deficit."
Data released on Dec. 12 showed that CPI inflation rose to 0.71% in November but was still well below the RBI's medium-term target of 4%. At the MPC meeting, the RBI lowered its inflation forecast for 2025-26 (Apr-Mar) by 60 basis points to 2.0%.
MPC members said the benign inflation period is likely to be prolonged with "underlying" inflation also in control. "With this kind of inflation trajectory, the question is not whether, but how much, of a repo rate cut is possible without heating the economy," Ram Singh, another external member, said.
Members agreed that even with the 125 bps of policy easing in 2025, including the December cut, there is no risk of potential overheating of the economy.
RBI Deputy Governor Gupta said that the most nominal indicators indicate that the economy at this point is not showing any signs of overheating. "Instead, one could interpret the data as indicating that there is slack in the economy," she said.
External member Singh also said several indicators suggest there is a slack in the economy, even as the GDP grew at a six-quarter high pace of 8.2% in the September quarter. Following the Jul-Sept data, the RBI has raised its FY26 GDP growth projection to 7.3% from 6.8?rlier.
"Even otherwise, we should not infer from the recent real GDP growth prints that the output gap is positive – that is, the economy's actual real GDP rate is higher than its maximum sustainable output growth rate," Singh said. He added that the economy can now sustain higher real GDP growth than in the past.
"To me, a growth rate above 7.5% appears realistic without building up price pressure. A rate cut will further boost the demand and help sustain a high growth rate," Singh said.
Members appeared satisfied with the transmission of the rate cuts to the economy so far. "Latest data suggests that transmission has been satisfactory and broad based across sectors," Saugata Bhattacharya, the third external member, said. "Given the RBI commitment to liquidity infusions, further transmission is also likely." End
Reported by Shubham Rana
Edited by Tanima Banerjee
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