RBI MPC meet: Growth needs a boost, but will inflation hold back rate cut?

The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) began its three-day meeting on Wednesday, setting the stage for a critical decision on the repo rate, which will be announced on December 6 at 10 AM. The meeting takes place amid growing calls from experts and leaders for a rate cut to support India’s slowing economic growth. However, concerns over inflation might stand in the way.
The repo rate, which determines borrowing costs across the economy, has been held steady at 6.5% for nine consecutive meetings. This reflects the RBI’s cautious stance as it navigates between fostering growth and controlling inflation.
Key figures, including Chief Economic Adviser V Anantha Nageswaran, Commerce Minister Piyush Goyal, and Finance Minister Nirmala Sitharaman, have urged the central bank to reduce borrowing costs. Piyuh Goyal has even questioned the direct link between food inflation and interest rate decisions, calling it “absolutely flawed.”
Despite the push for a rate cut, RBI Governor Shaktikanta Das has often highlighted inflation, particularly food prices, as a major risk.
India’s GDP growth slowed to 5.4% in the second quarter of FY25, marking the weakest performance in seven quarters. Manufacturing grew just 2.2%, while consumption and private investment weakened. Although agriculture provided some relief with a 3.5% growth, overall economic activity remains under pressure.
“This GDP print is likely the bottom of the current cycle, but it puts the RBI’s growth forecast of 7.2% for the year at risk,” said Radhika Rao, Senior Economist at DBS Bank. She added, “We now expect full-year growth to settle between 6.2% and 6.4%.”
The sharp slowdown has raised questions about whether the RBI’s current policy is sufficiently supportive of growth.
Inflation remains a significant concern for the RBI. In October, inflation rose to 6.2%, the fastest pace in over a year, mainly driven by food prices. While it is expected to ease in November, inflation levels are still above the RBI’s target of 4.5%.
“Inflation has been at the upper end of the target range for the past two months, which limits the room for rate cuts,” said Mandar Pitale, Head of Treasury at SBM Bank India. “The MPC must balance this with the need to support growth.”
Das has also stressed that inflation must be contained to ensure long-term economic stability.
Liquidity in the banking system has tightened recently due to GST outflows, foreign exchange interventions, and rising overnight borrowing costs. This has raised concerns about systemic liquidity.
“Liquidity has become a hot topic,” said Harsimran Sahni, Executive Vice President and Head of Treasury at Anand Rathi Global Finance. “The RBI may consider measures like a phased CRR cut or open market operations (OMO) to ease these pressures.”
A 25-basis-point CRR cut could inject Rs 1.15 lakh crore into the banking system, according to analysts.
The rupee has also come under pressure due to a strong US dollar and portfolio outflows. While the RBI has used its foreign exchange reserves to stabilise the currency, this approach has limits.
Analysts are divided on whether the RBI will cut the repo rate during this meeting or adopt a more cautious approach.
“The likelihood of a rate cut in December is like a flip of a coin,” said Sahni. “Inflation remains a concern, but the GDP slowdown has built pressure for growth-supportive measures.”
Others suggest a “dovish hold,” where the RBI signals a willingness to cut rates in the future while maintaining the current rate.
“We expect a dovish stance with more members voting for a cut compared to the 5:1 ratio at the last review,” said Rao from DBS Bank. “A rate cut is more likely at the February meeting, but the recent GDP miss might push the MPC to act sooner.”
The RBI faces a tough balancing act as it weighs the need to support growth against the risks of high inflation and external pressures.