RBI Expected to Hold Repo Rate Steady After Strong GDP Growth
The Reserve Bank of India is likely to maintain the repo rate at its current level during the upcoming December monetary policy review, following India’s robust 8.2% GDP growth in the July-September quarter.
Key Takeaways
- RBI expected to pause repo rate in December policy meeting
- India’s Q2 GDP growth at strong 8.2%
- Earlier expectations of 25-bps rate cut have faded
- Inflation has moderated significantly to 2.6% target
SBI Research Analysis
According to an SBI Research report, expectations for a shallow 25-basis-point rate cut have diminished as detailed analysis of the strong Q2 growth figures and evolving economic conditions favor maintaining current rates.
“Expectations built till a few days back of a shallow rate cut of 25 bps 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,” the report stated.
The report indicates that monetary policy has entered a phase of pause globally, with variations across different economies. It emphasizes the importance of continuing with decisions beyond direct rate actions and focusing on affirmative measures outside the policy space.
Recent Monetary Policy Decisions
In its October meeting, the Monetary Policy Committee unanimously maintained the policy repo rate at 5.5%. The RBI Governor highlighted that headline inflation had moderated considerably, giving the MPC confidence to sustain the current rate stance.
The central bank revised its inflation projection for the current financial year downward to 2.6% in October, showing significant improvement from earlier estimates of 3.1%. This follows a previous downward revision to 3.1% in August from 3.7% projected in June.
Inflation Drivers
The improvement in inflation has been primarily driven by a sharp decline in food prices and the rationalization of Goods and Services Tax rates. While inflation remains a concern for many advanced economies, India has successfully managed to steer its inflation trajectory in a favorable direction.
The RBI maintained its benchmark repo rate at 6.5% for eleven consecutive meetings before implementing its first rate cut in approximately five years in February 2025. The next MPC meeting is scheduled for December 3-5, 2025.
