RBI likely to cut repo rate by 25bps as inflation hits decadal low

The RBI could announce a 25-basis point repo rate cut in its upcoming December monetary policy meeting, driven by a sharp decline in inflation and strong growth momentum, a report by credit rating agency CareEdge said on Tuesday. It said inflation has eased to a decadal low of 0.3 per cent in October, well below the RBI's 4 per cent target threshold, creating policy space for rate cuts. The current repo rate stands at 5.5 per cent. "Factors such as stable Brent crude prices, healthy reservoir levels supporting rabi sowing, and muted price pressures arising from excess capacity in China should help prevent any sharp rise in inflation," the report stated. While GDP growth has accelerated to 8.2 per cent in the second quarter of the 2025-26 fiscal, CareEdge projects a moderation to around 7 per cent in the second half of the financial year, as the boost from front-loaded exports fades and post-festival consumption moderates.

For the full fiscal, the report forecasts GDP growth at 7.5 per cent. It said that with CPI inflation expected to average around 3.7 per cent over the next 12 months, the real policy rate at current levels would be roughly 1.8 per cent – above the estimated neutral range of 1-1.5 per cent – indicating scope for a rate cut. Despite external headwinds, including prolonged trade negotiations with the US and geopolitical tensions, India's external sector remains resilient with foreign exchange reserves rising by USD 27 billion to USD 693 billion as of mid-November, it noted. CareEdge expects the RBI to revise its FY’26 inflation projections to around 2.1 per cent and growth forecast to around 7.5 per cent in the December policy meeting.