The Reserve Bank of India (RBI) faces a tough call on whether to lower interest rates or not, at its ongoing monetary policy meeting that started on December 3. An announcement will be made on December 5.
Economists and analysts who Forbes India spoke to presented a mixed picture. Opinions are divided, with some suggesting that as the monetary policy committee has an inflation managing mandate—and retail inflation at a record low of 0.25 percent in October—there is enough scope to lower interest rates.
In view of the better-than-expected Q2FY26 GDP data, which came in at 8.2 percent, the RBI might revise its macro-economic growth projections for the fiscal year.
On monetary policy action, Sakshi Gupta, principal economist at HDFC Bank, says, “It hinges on the fact that inflation is very low and will remain low for the next three quarters, possibly below 4 percent till August 2026. But we have not seen the impact of the US trade tariffs play out. This is because the front-loading of exports masks any sort of drag.” There is, thus, a concern that the growth seen in the financial year may fade to 7 percent in the second half of FY26. Growth had averaged around 8 percent in the first half of FY26.
She said there is some uncertainty on whether the kind of push that we have seen in consumption during the festive season will sustain or not. “[The RBI should] use this space in the absence of the trade deal to cut rates,” she said.
Garima Kapoor, economist at Elara Capital, is also forecasting an interest rate cut from the ongoing monetary policy. “We continue to expect a 50 basis points rate cut in FY26E,” Kapoor says, which includes a 25 basis points cut in the December policy. “Notwithstanding the robust GDP print, the sluggish CPI offers room for the RBI’s monetary policy committee to ease rates as headline CPI remains the primary mandate of the Central Bank,” she says.
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Kapoor, however, believes the tailwind for H2FY26 will be the US-India trade deal-related developments and expects that to conclude before end-CY25. “To date, the adverse impact of higher tariffs is yet to be visible, due to US economy frontloading imports for its festival season and continued diversification of exports into newer geographies,” she said.
Kapoor, however, said “the domestic economy has the capacity to offset risks from the external sector”. She has revised India’s FY26E growth to 7.5 percent from 7.0 percent earlier, with risks balanced.
But Anubhuti Sahay, head, India Economic Research at Standard Chartered Bank, expects the RBI to keep rates on hold. “There has been enough monetary and fiscal easing. We are concerned about the transmission of rates. If December delivers another 25 basis points of rate cut, it can be interpreted as the end of the rate easing cycle and yields can then back up.”
This will then work against the transmission. “The ultimate objective of monetary policy is that whatever is delivered gets passed on to the economy, including the markets. If it works in the opposite direction, then the justification to cut rates reduces,” she explains.
Sahay forecasts the RBI to keep rates on hold till the end of FY26, but says inflation could start to move back up in mid-2026.
Soumya Kanti Ghosh, chief economic advisor with State Bank of India, in his report on the prelude to the policy, says, “Broad-basing growth, sans any rate cut, may necessitate ushering in ‘neutral regime’ tantamount to ‘calibrated easing’ by targeting yields and liquidity management simultaneously.” The RBI will likely maintain a neutral stance on monetary policy and need to boost liquidity.
“Expectations built till a few days back of a shallow rate cut of 25 basis points appear to have faded as finer readings of the strong Q2 growth print and the evolving playbook make the choice tilted in favour of pause in December policy,” Ghosh says in the report.
Economists and analysts will keep a close watch on the revival of private capex and credit growth from banks. The challenge for banks on credit growth remains mobilisation of deposits.
First Published: Dec 03, 2025, 11:32
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