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Informist, Thursday, Dec. 4, 2025

 

MUMBAI - Following are the expectations of economists from the meeting of the Reserve Bank of India's Monetary Policy Committee, which began Wednesday. The committee's decision will be announced on Friday.

 

RADHIKA RAO, SENIOR ECONOMIST, DBS BANK

Markets are divided as we approach the RBI MPC rate decision on Friday in midst of conflicting signals -- a strong 8.2% real growth print in the September quarter while inflation slipped below the policy target to a series low in October.

 

The policy decision will be dictated by the weightage that the MPC assigns to below-target inflation, which has left a sizeable real rate buffer, or the firm growth report. Our baseline view is for a modest cut this week on the back of an evolving inflation trajectory for 2025-26 (Apr-Mar) which is not only running 50-60 basis points below the RBI's projection but has also undershot the 2-6% inflation target band.

 

Admittedly, rupee's sharp move this week has injected uncertainty into the rate decision. Equal importance will be given to the policy guidance, where the MPC might leave the door open for further action if external conditions deteriorate further, preventing a re-hardening in borrowing costs. While the rupee depreciated to a record low this week, the committee is expected to refrain from providing directional cues on the currency, instead emphasising on preference to minimise volatility and discourage one-sided speculative bets. Announcements on potential open market operations might be made outside of the rate decision timeline. 

 

CAREEDGE RATINGS

The upcoming December monetary policy meeting will be shaped by a sharp decline in inflation, a notable pickup in growth momentum, and persistent external headwinds. While the domestic economic environment remains broadly resilient, the continued imposition of higher 50% tariffs on Indian exports to the US amid prolonged trade negotiations is a key concern.

 

The RBI is likely to take comfort from the sharp moderation in India's inflation, which eased to a decadal low of 0.3% in October. The favourable impact of goods and services tax rationalisation and deflation in the food and beverages category contributed significantly to the subdued inflation print.

 

We expect inflation to remain below the 4% threshold in both the third and fourth quarters of the fiscal year. This decline in inflation has created policy space for the RBI to consider rate cuts.

 

Although GDP growth averaged 8% in Apr-Sept, we expect it to ease to around 7% in Oct-Mar as the boost from front-loaded exports fades and post-festival consumption moderates. Given the anticipated moderation in growth momentum in the second half, uncertainties surrounding the prolonged trade negotiations with the US, and the significant decline in inflation, we expect the RBI to adopt a forward-looking approach and deliver a 25-bps repo rate cut in the December policy meeting.

 

Additionally, CPI inflation is expected to average around 3.7% over the next 12 months. At the current repo rate, this would place the real policy rate at roughly 1.8%—above the estimated neutral range of 1–1.5%—thereby indicating scope for a 25-bps rate cut.

 

MADHAVI ARORA, CHIEF ECONOMIST, EMKAY GLOBAL FINANCIAL SERVICES

The RBI and markets have repeatedly misread the macro cycle on the inflation and growth fronts, underscoring how unreliable forecasts have become in this cycle. Beneath the supposed macro-Goldilocks, underlying growth remains uneven and nominal GDP is likely sub-8%.

 

With CPI poised to further undershoot by around 130 bps in Oct-Mar, the RBI will find it harder to overlook its core mandate. Clear near-term inflation visibility—and the need to shift away from an increasingly misplaced one-year-ahead CPI anchor—strengthens the case for a December cut, even with a possible split MPC.

 

Primary liquidity infusion and tactically smart communication will need to complement rate-easing. We reiterate that rupee's softness should not be misread as a rate-easing deterrent but as a natural growth stabiliser.

 

HSBC

The season of new records in data is tough to navigate. It's admittedly a close call, but we believe the RBI will cut rates in the December meeting. In the inflation-growth debate, we believe low inflation is a more convincing dynamic than high growth, as the latter has deflator issues.

 

Further, low nominal GDP growth further strengthens our case. Medium-term inflation is likely to be muted. In fact, we believe FY27 inflation could be 0.7 percentage point (70 bps) lower than RBI's 4.5% forecast. This should allow the RBI to sound dovish in its outlook.

 

External finances are weakening, putting pressure on the Indian rupee. But a gradually weakening rupee is the best shock absorber for high tariffs. Rate decisions should focus on the growth-inflation trade-off instead of the currency.

 

If bond market transmission is an issue, that needs another instrument, for instance open market operation purchases, to address the demand-supply trade mismatch. In fact, we see room for around INR 1.5 trillion of OMO purchases in Jan-Mar. All said, in this unique season of records, we expect a 25 bps rate cut in December, taking the policy repo rate to 5.25%, with risks, if any, of more easing in FY27.

 

YES BANK

This will be a touch-and-go policy for the RBI. This policy can go either way. There are adequate reasons to believe that a policy rate cut is warranted – especially as headline CPI inflation is at sub-2% levels and is likely to remain so in the next 3-4 months.

 

On the other hand, growth has been surprising on the higher side with Jul-Sept at 8.2% while high frequency data for October suggest expansion to have continued in both manufacturing and services, supported by GST cuts, monetary policy easing, festive demand etc. Some of the recently announced data prints such as manufacturing Purchasing Managers' Index and Index of Industrial Production are on the lower side.

 

While growth can face headwinds in quarters ahead as the festive demand gets eroded and as Centre's capital expenditure comes down, retail inflation is expected to rise on the back of base effects. RBI should stay on a pause and keep stance at "neutral" to retain its fire power in the event of any growth slump.

 

ICICI BANK

With 8% growth in Apr-Sept, stronger than estimated growth implies MPC would gravitate towards a pause. Even as nominal growth is on the lower side, the current methodology extrapolates both real and nominal variables which has an element of under and over reporting on both sides.

 

Case for a rate cut is made from high real rates. However, from a 1-year ahead perspective, real rates are at the lower end of RBI's range and thus leave little room for a cut amidst strong growth. The other argument made for policy easing is expectation of weak growth in Oct-Mar given fiscal compression and weak goods exports. However, a weaker rupee should at least push exports to non-US geographies and thus take care of external headwinds.

 

More importantly, a Balance of Payments deficit for two years in a row implies more reliance on domestic savings for meeting growth requirements of real economy which naturally calls for higher than lower interest rates which is visible in rising wholesale deposit rates recently.

 

Given a high credit deposit ratio and rising demand for credit, transmission of additional rate cut would be difficult in the current scenario and focus should be on ensuring pass-through of earlier cuts. What the MPC could do in this policy is to signal a dovish hold and outline the liquidity strategy for meeting the needs of the real economy in Jan-Mar which should ensure transmission of earlier rates is continuing. A cut which signals end of the cycle could disrupt the same.

 

MPC should remain data dependent and with significant changes in methodology of both growth and inflation, should have an open mind on how conditions evolve in the future.

 

BANK OF BARODA

The MPC of the RBI is likely to keep its policy rate and stance unchanged in December. Strong growth and range-bound inflation are expected to provide the MPC space to keep rates steady as it navigates a challenging and uncertain external environment.

 

Growth has held ground in Oct-Dec, largely supported by GST cuts and festive demand. At the same time, lower food inflation has kept a lid on headline inflation. Given this backdrop, the MPC is likely to move on rates only in case the risks to growth materialise in Jan-Mar.

 

Given the recent numbers, we expect the MPC to revise its growth projection upwards, while inflation estimates are likely to see a downward revision. Further, while liquidity has remained in surplus in November, some liquidity measures in the form of OMOs can be expected to account for the strain on liquidity from RBI's foreign exchange intervention to stabilise the rupee.

 

NOMURA

If the latest GDP data are taken at face value, then economy is growing robustly, and there is no need to cut rates, even though ultra-low inflation provides space. This is similar to the argument made by the RBI at the previous October MPC meeting, when it resisted easing despite sounding uncharacteristically dovish.

 

A similar argument can be made for the December and February MPC meetings as well, because the disconnect between high real GDP growth and low deflators is set to continue.

 

The MPC's decision will rest on two fundamental questions. First, does it believe that the Indian economy is growing above trend, and the output gap is positive? Alternate signals – core inflation, the credit gap, the current account deficit and tax collections – do not suggest that is the case, in our view.

 

Second, if nominal GDP growth continues to slow, due to a falling GDP deflator, but real growth holds up, then should the MPC focus on inflation being below its 4% mandate or real growth being above estimates? The RBI is a flexible inflation-targeting central bank. As we have shown previously, the drop in CPI inflation may be exaggerated due to low food inflation, but underlying inflation measures have also fallen to around 2.5% in October.

 

With the one-year ahead inflation forecast well anchored at around 4%, the argument for a rate cut shouldn't be just one of rescuing growth, but should instead be of hauling up inflation back to the tolerance band.

 

Overall, the higher Jul-Sept GDP print has reduced the urgency to cut, but it has not settled the debate on the right balance between slowing nominal GDP growth versus high real GDP growth. We believe that part of the low inflation is more structural in nature, and policy rates should gradually adjust to this macro shift. Consequently, we retain our forecast of a 25 bps cut in December, but we lower the probability to 60% from 65?rlier as the MPC could decide to deliver another dovish hold.

 

ICICI SECURITIES PRIMARY DEALERSHIP

Strong growth data for the September quarter and favourable high frequency data for the current quarter should confirm RBI MPC is in the end stages of the monetary policy easing cycle. Yet, real growth for Jul-Sept and for Apr-Sept more broadly is exaggerated by statistical tailwinds and one-off factors and growth for Oct-Mar would be lower but still comfortable at close to 7%.

 

Moreover, there are still large uncertainties impacting growth outlook, including that about durability of consumption revival and whether that would pull up private capital expenditure growth. It is not clear whether high tariffs imposed on India will come down quickly also, even as we assume that to be the baseline scenario.

 

Moreover, the current understanding about level of GDP growth may shift when new series is released, with double deflation approach for manufacturing sector increasing risk of downward revision to current year growth numbers. Yet, based on high frequency data such as on credit growth and consumer sentiment proxies, direction of growth is turning for the better.

 

At the same time, there are no clear signs this is an overheating economy, or one that is likely to become one any time soon. Private capital expenditure sentiment is weak to begin with and that suggests long runway to the maturing of this growth cycle. That should be a sign that inflation pressures should stay contained in any reasonable forecast horizon.

 

Given inflation is very benign and comfortably tracking below RBI forecasts, there continues to be a strong case for the central bank to deliver the promised rate cut. We believe RBI MPC set the bar for a rate cut very low when it unveiled the last policy decision, as it was signalled there is scope for more easing based on its inflation forecasts. Benign inflation data since that time with favourable internals should thus cement the cut, a point that was emphasised in Governor's recent interview.

 

The real decision to be made by the central bank is with regards to managing the tone of policy statement. Based on latest growth data, the same could be leaning towards neutral rather than dovish.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Compiled by Shubham Rana

Filed by Vandana Hingorani

 

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