Reserve Bank of India (RBI) Governor Sanjay Malhotra will announce the policy rate on Friday as the three-day Monetary Policy Committee (MPC) meeting concludes. Financial markets remain divided on expectations, with economists largely anticipating a status quo, while several industry leaders argue that conditions are favourable for a rate cut.
Economists believe the central bank may maintain its current stance, supported by robust economic indicators. India’s strong GDP growth of 8.2 per cent and multi-year low inflation may allow the RBI to keep the policy rate unchanged at 5.5 per cent. These contrasting macroeconomic signals have fuelled debate over the direction of monetary policy.
Speaking to ANI, Mehul Pandya, MD and Group CEO of CareEdge Ratings, said strong GDP growth and low inflation present opposing signals for interest rate action.
“Both these developments – continued strong GDP growth and multi-year low inflation — are mutually opposing forces from an interest rate perspective. Central banks usually do not cut rates during periods of strong economic activity. At the same time, they typically respond to low inflation by reducing interest rates,” he noted.
A report by Bank of Baroda also projected that the RBI will keep interest rates unchanged. The report said the central bank is expected to maintain the repo rate at 5.50 per cent in its upcoming policy announcement and retain its neutral stance.
“We expect the RBI to keep the repo rate steady at 5.50 per cent in December 2025. The stance is also expected to remain neutral,” the report said.
However, several industry leaders believe the timing is right for a rate cut as inflation continues to ease.
Rohit Arora, CEO and Co-Founder of Biz2X and Biz2Credit, said the current environment strengthens the case for a 25-basis point reduction.
“With inflation continuing to ease and financial markets increasingly pricing in a 25-basis point reduction, the upcoming policy review presents a strong opportunity for the RBI to adopt a more supportive stance,” Arora said.
In the previous monetary policy review on October 1, the RBI maintained the repo rate at 5.5 per cent. The MPC, in a unanimous decision, kept the rate unchanged following meetings held on September 29–30 and October 1.
With that decision, the Standing Deposit Facility (SDF) rate also remained at 5.25 per cent, while the Marginal Standing Facility (MSF) rate and the Bank Rate continued at 5.75 per cent.
The SDF rate refers to the interest paid by the RBI to banks that deposit their surplus uncollateralised funds with the central bank on an overnight basis.
(ANI)
