India’s real GDP has grown at 8.2 per cent in Q2 of FY 2025-26 as against a growth rate of 5.6 per cent during Q2 of FY 2024-2025 and 7.8 per cent in Q1 2025-2026
Mumbai: With the second quarter economic growth print exceeding all projections, expectations of a shallow rate cut of 25 basis points in the December policy appear to have faded, believe a section of economists. However, while some economists expect the RBI to cut the benchmark repo rate this week to support growth which would face more external pressure in the second half of this fiscal due to the impact of higher US tariffs and normalization of government capital expenditure, the odds favour a pause. The central bank is also likely to announce open market operations (OMO) to help provide liquidity during December when the advance tax payments flow out of the system. There may also be a revision in inflation and growth forecast by 0.1-0.2 per cent for FY26.
The Monetary Policy Committee (MPC) of the RBI will meet for 5th time during the current fiscal year between December 3 and 5 to review the policy interest rate. During its last two meeting (August and October), it went for pause after three successive rate cuts, totaling 100 basis points.
Says Madan Sabnavis, chief economist at Bank of Baroda, “The credit policy comes at a time when inflation is at an all time low and growth on a high trajectory path. Therefore, it would be a close call on the repo rate. Given that monetary policy is forward looking and inflation in Q4-FY26 and FY27 is likely to be in the 4 per cent plus region, yielding a real repo rate of 1-1.5 per cent, the policy rate appears to be at a fair level. Under these conditions we do not think that there should be any change in the policy rate.”
“However, as liquidity, though in surplus, is at the lower end of the one per cent of Net Demand and Time Liabilities mark there could be a case for announcing some OMOs. This will be helpful during December when the advance tax payments flow out of the system. On the forecasts side, we do expect downward revision in inflation forecast by 0.1-0.2 per cent and an upward revision in GDP forecast of 0.1-0.2 per cent for FY26,” added Sabnavis.
India’s real GDP has grown at 8.2 per cent in Q2 of FY 2025-26 as against a growth rate of 5.6 per cent during Q2 of FY 2024-2025 and 7.8 per cent in Q1 2025-2026. The six-quarter high real GDP growth is expected to push up the full year number to above 7 per cent, with India retaining its tag of being the fastest growing major economy in the world. On the other hand, retail inflation based on Consumer Price Index (CPI) has fallen to 0.25 per cent in October, which is lowest in the current series, with the base year of 2012.
Also, globally, a broader trend emerging is that monetary policy has entered a phase of pause with differences across geographies. According to SBI Economic Research, the number of rate decisions while still dominated by cuts are far less in count in 2025 than in 2024.
Radhika Rao, Executive Director and Senior Economist at DBS Bank said, “The MPC faces a challenging act at the December rate review, with the mix of a strong growth print and record low inflation. We expect an emphasis on forward looking growth guidance and high real rate buffer due to weak inflation, to justify a move to lower rates further.”
