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The RBI is expected to consider a 25-basis point repo rate cut in its December policy meeting, supported by a sharp decline in inflation to a decade-low of 0.3 per cent and steady economic growth. While GDP rose to 8.2 per cent in Q2 of the 2025-26 fiscal, growth is likely to moderate to 7 per cent in the latter half. Stable crude prices, good reservoir levels, and muted global price pressures are helping contain inflation. With a real policy rate above neutral levels and robust foreign exchange reserves, there is scope for easing to support growth.
The Reserve Bank of India (RBI) may reduce the repo rate by 25 basis points in its upcoming December monetary policy meeting, according to a report from credit rating agency CareEdge. The recommendation comes amid a sharp decline in inflation and continued strong growth momentum in the economy. Advertisement
Inflation has fallen to a decade-low of 0.3 per cent in October, well below the RBI's 4 per cent target, providing room for potential rate cuts. The current repo rate stands at 5.5 per cent. CareEdge highlighted that factors such as stable Brent crude prices, sufficient reservoir levels supporting rabi crop sowing, and restrained price pressures due to excess capacity in China are expected to keep inflation under control.
India's GDP growth accelerated to 8.2 per cent in the second quarter of the 2025-26 fiscal year, though growth is projected to ease to around 7 per cent in the second half as the initial boost from exports slows and post-festival consumption stabilizes. For the full fiscal year, the report estimates GDP growth at 7.5 per cent.
With consumer price inflation expected to average 3.7 per cent over the next year, the real policy rate at current levels would be approximately 1.8 per cent, which is above the estimated neutral range of 1-1.5 per cent. This indicates room for a reduction in the repo rate.
Despite global challenges, including ongoing trade negotiations with the US and geopolitical tensions, India's external sector remains strong. Foreign exchange reserves have risen by USD 27 billion, reaching USD 693 billion by mid-November. CareEdge expects the RBI to revise its FY26 inflation projection to around 2.1 per cent while maintaining the growth forecast at roughly 7.5 per cent in the December policy review.
Source PTI
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