RBI monetary policy on Fri; mixed expectations on rate cut, status quo

Mumbai, Dec 4 (PTI) RBI Governor Sanjay Malhotra will announce the bi-monthly monetary policy on Friday amid mixed expectations of a 25 basis points rate cut as well as the possibility of the central bank opting for status quo.

Reserve Bank's rate-setting panel -- Monetary Policy Committee (MPC) -- started its three-day deliberation on the next set of bi-monthly monetary policy on Wednesday.

The meeting is taking place against the backdrop of falling inflation, rising GDP growth, the rupee crossing 90 against the dollar and ongoing geopolitical tensions.

The RBI reduced the key short-term lending rate (repo) by 100 basis points in three tranches, beginning in February, amid declining consumer price index (CPI) based inflation.

Several experts said that while growth remains robust, a significant decline in retail inflation has created additional room for a reduction in the key short-term lending rate.

Even the RBI Governor last month had said that there is a scope to further reduce policy interest rates.

In this backdrop, some experts believe that the RBI may continue with the pause on interest rates as economic growth has picked up, sustained by fiscal consolidation, targeted public investment, and various reforms, such as the GST rate cut.

The CPI-based headline inflation is ruling below the 2 per cent lower band mandated by the government. Besides, the Indian economy has clocked better-than-expected GDP growth of 8.2 per cent in the second quarter.

The government has mandated the RBI to ensure that retail inflation remains at 4 per cent with a margin of 2 per cent on either side.

The consensus is building a 25 bps rate cut in the upcoming MPC announcement on December 5, 2025, a BNP Paribas India report said.

"Most of the fundamental data points support this prognosis, given low inflation that even on consensus-expected end FY26 rebound, stays well within RBI's comfort zone. However, we are yet to change our base case assumption of no rate cut in December," it said.

Sankar Chakraborti, Managing Director and Chief Executive Officer of Acuité Ratings & Research, said expectations in the market are finely balanced as economists weigh two contrasting signals from the economy.

"On one hand, both retail and core inflation have eased to multi-month lows, creating a comfortable backdrop for a potential 25-basis-point rate cut, with many analysts arguing that the sustained disinflation trend offers the RBI room to support growth," he said.

On the other hand, India's Q2 FY26 GDP growth remained strong, crossing 8 per cent, prompting several experts to suggest that the central bank may prefer to maintain the policy rate at 5.5 per cent to preserve monetary space and ensure continued stability in capital flows.

"With these competing forces of cooling prices versus resilient growth, consensus estimates currently lean slightly towards a status quo, even though a rate cut remains very much within the realm of possibility," Chakraborti added.

Raoul Kapoor, Co-CEO of Andromeda Sales and Distribution, expects the Monetary Policy Committee to announce a 25 basis point rate cut in the upcoming policy review.

"A rate cut at this juncture would provide meaningful relief to borrowers - particularly those servicing big-ticket loans such as home loans and auto loans. It would help lower the overall cost of credit and, in turn, stimulate demand across key consumption-driven and investment-led sectors of the economy," Kapoor said.

Meanwhile, Atul Monga, CEO and Co-Founder of BASIC Home Loan, expects the MPC to keep the repo rate unchanged, despite inflation showing signs of relief.

"For homebuyers, this means EMIs may likely rise in the near future, offering stability over the next year. But doesn't necessarily mean relief, considering many borrowers who took floating-rate loans in the last 18-24 months are still coping with higher repayment commitments," Monga said.

RBI is also expected to revise its GDP growth forecast upward, given better-than-expected first-half numbers. Earlier in October, the Reserve Bank of India had upped the GDP forecast to 6.8 per cent from the earlier projection of 6.5 per cent for the current financial year. PTI NKD NKD SHW