RBI monetary policy on Friday; mixed expectations on rate cut, status quo

RBI to Announce Bi-Monthly Monetary Policy Amid Mixed Expectations

The Reserve Bank of India (RBI) Governor, Sanjay Malhotra, is set to announce the bi-monthly monetary policy on Friday, December 5, 2025, amidst mixed expectations of a 25 basis points rate cut or a status quo.

Background of the Monetary Policy Announcement

• The RBI's rate-setting panel, the Monetary Policy Committee (MPC), has started its three-day deliberation on the next set of bi-monthly monetary policy.
• The meeting is taking place against the backdrop of falling inflation, rising GDP growth, and ongoing geopolitical tensions.
• The RBI reduced the key short-term lending rate (repo) by 100 basis points in three tranches, beginning in February, amid declining consumer price index (CPI) based inflation.

Experts' Views on the Monetary Policy

• Several experts believe that while growth remains robust, a significant decline in retail inflation has created additional room for a reduction in the key short-term lending rate.
• Some experts suggest that the RBI may continue with the pause on interest rates as economic growth has picked up, sustained by fiscal consolidation, targeted public investment, and various reforms.
• Others believe that a rate cut at this juncture would provide meaningful relief to borrowers and stimulate demand across key consumption-driven and investment-led sectors of the economy.

Recent Economic Data and RBI's Forecast

• The CPI-based headline inflation is ruling below the 2 per cent lower band mandated by the government.
• The Indian economy has clocked better-than-expected GDP growth of 8.2 per cent in the second quarter.
• The RBI is also expected to revise its GDP growth forecast upward, given better-than-expected first-half numbers.

Consensus and Analysts' Predictions

A BNP Paribas India report suggests that a 25 bps rate cut is a possibility, given low inflation and a comfortable backdrop for a potential rate cut. However, some analysts believe that the RBI may prefer to maintain the policy rate at 5.5 per cent to preserve monetary space and ensure continued stability in capital flows.

Sankar Chakraborti, Managing Director and Chief Executive Officer of Acuité Ratings & Research, said, "Most of the fundamental data points support this prognosis, given low inflation that even on consensus-expected end FY26 rebound, stays well within RBI's comfort zone."

However, others like Raoul Kapoor, Co-CEO of Andromeda Sales and Distribution, expect the Monetary Policy Committee to announce a 25 basis point rate cut in the upcoming policy review.

Atul Monga, CEO and Co-Founder of BASIC Home Loan, expects the MPC to keep the repo rate unchanged, despite inflation showing signs of relief.

Conclusion

The RBI's decision on the bi-monthly monetary policy will be a closely watched event, as it will have a significant impact on the economy and the financial markets.

The mixed expectations of a 25 basis points rate cut or a status quo reflect the competing forces of cooling prices versus resilient growth, making it a challenging decision for the RBI.

As the RBI Governor, Sanjay Malhotra, announces the bi-monthly monetary policy, the market will closely watch the decision, and its impact on the economy and the financial markets.