The Reserve Bank of India's Monetary Policy Committee (MPC) is set to announce its crucial policy decision this week, sparking intense debate among economists. The central question is whether the RBI will cut the repo rate to stimulate the economy or maintain its current stance, given the conflicting signals from robust GDP expansion and multi-year low inflation.
Strong GDP vs. Low Inflation: The RBI's Dilemma
India's economic data presents a complex picture for the policymakers. On one hand, the country's GDP growth surged to 8.2% in the second quarter of the fiscal year 2025-26 (FY26). This impressive momentum is believed to have continued into the third quarter, driven by sustained rural demand and a recovery in urban consumption.
Simultaneously, inflationary pressures have eased dramatically. The Consumer Price Index (CPI) inflation dropped to a series low of 0.25% in October 2025, primarily due to moderating food prices. This figure is expected to fall even further, dipping below the RBI's own projections.
Mehul Pandya, MD and Group CEO of CareEdge Ratings, highlighted this unique conflict. He explained that strong GDP growth typically discourages central banks from cutting rates, while a low inflation environment encourages monetary easing. Pandya noted that India's growth stems from ongoing fiscal and structural reforms but warned that global uncertainties and challenging trade conditions could impact the outlook. He concluded that the environment seems conducive for a rate cut, though the room for further cuts in 2026 may be limited.
The Case for a Rate Cut: Supporting Growth Momentum
Advocates for a reduction argue that the current economic conditions provide a golden opportunity. Mayur Modi, Co-founder and Co-CEO of Moneyboxx Finance Limited, stated that the record GDP growth offers the RBI greater policy flexibility. "With inflation easing to multi-year lows and remaining comfortably within the RBI's tolerance band, the probability of a repo rate cut has strengthened meaningfully," he said. He believes softening prices give the MPC room to support growth without destabilizing the macroeconomy, and a well-timed cut could boost consumption and credit demand across sectors.
Echoing this sentiment, Rohit Arora, CEO and Co-Founder of Biz2X and Biz2Credit, favored a more supportive stance. He pointed out that with inflation easing and financial markets anticipating a reduction, the upcoming policy review is a strong opportunity for the RBI to act.
The Argument for a Pause: Prudence Over Action
Contrary to the optimistic calls, a report from the Bank of Baroda (BoB) suggests the central bank will likely hold its ground. The report predicts the RBI will maintain the repo rate at 5.50% and retain its neutral stance. It underscores that India's economic performance remains exceptionally strong, with urban consumption and resilient rural demand expected to sustain momentum. Private investment is also showing signs of recovery, aided by a pickup in credit demand.
On inflation, the BoB report acknowledged the sharp decline in headline CPI but noted that core inflation remains above 4%, partly due to higher gold prices. It stressed that while conditions allow for a cut, the RBI is likely to proceed cautiously given the underlying strength of growth. Maintaining the current rate would let the effects of previous policy actions fully permeate the system. The central bank might consider additional support later if challenges, especially from global tariffs, persist.
The MPC meeting is scheduled for December 3 to 5, 2025. The final policy decision will be announced by RBI Governor Sanjay Malhotra at 10 AM on December 5.
