As the Reserve Bank of India (RBI) prepares to deliver its policy decision on 5 December, market participants remain split on the central bank’s move this time. The policy comes in the backdrop of record-low inflation, surprisingly strong real GDP numbers, weakening nominal growth and rising external risks.
A Mint poll of 13 economists shows that nine expect the RBI’s Monetary Policy Committee (MPC) to pause on rates, while four see room for a 25-basis-point cut to 5.25%. Here are five things to watch out for in Friday’s policy:
Policy outcome: Pause or the last cut?
The primary question is: will soft headline inflation and a slowdown in nominal GDP give the RBI enough room to extend its easing rate cycle? The consensus is a pause, especially after GDP surprised at a stronger-than-expected 8.2% growth in the September quarter, higher than RBI’s 6.8% projection.
Economists at Standard Chartered Bank believe that ample liquidity and front-loaded fiscal spending already support activity, making a rate cut unnecessary. However, others, such as Nomura, still see a 65% probability of a rate cut, noting inflation’s sustained undershoot of the RBI’s medium-term path.
MPC is largely expected to hold rates and retain its neutral stance, while signalling that cuts remain on the table in 2026.
Will RBI acknowledge the GDP surge?
Currently, the RBI’s projection for FY26 GDP at 6.8% looks conservative after the back-to-back upside surprises. HDFC Bank has upgraded its projection of GDP to 7.3% from 7% earlier as it believes that sequential momentum has genuinely improved, even as low deflator distorts real GDP.
While economists unanimously believe that the central bank will revise its GDP guidance above 7%, they are also of the view that it may avoid large upward revisions given weakening nominal GDP at 8.7% in Q2, looming headwinds from slower global growth, US tariff uncertainty, and moderating government capex in the second half of FY26.
Inflation: How much comfort is enough?
Headline inflation for October dropped to 0.25%, the lowest on record, driven by food deflation, rationalisation of GST and base effects. Interestingly, SBI Research said CPI, excluding gold, is already negative and Q1FY27 inflation is trending below 3%.
Analysts expect RBI to cut its inflation projection to around 1.8-2% for FY26 from its previous forecast of 2.6% and for Q1FY27 to 4% from 4.5%.
Liquidity and market measures
With uneven transmission of rate cuts and steep government bond yield curve, the market will watch for further steps to cool yields.
SBI Research expects “calibrated easing within a neutral stance” potentially through open market operation purchases to maintain durable liquidity at 2.0–2.5% of NDTL (net demand and time liabilities).
Another approach could be to examine state issuances from a duration perspective and introduce uniform pricing in government bond and SDL auctions, which could help reduce volatility.
Above all, the RBI’s tone and commentary will be crucial and provide further direction to markets.
Protection for the rupee
The rupee’s recent fall past 90 against the US dollar has come from weak capital inflows, a wider trade deficit and limited RBI intervention due to forward-book constraints. The Indian rupee has declined 5% against the US dollar in 2025.
Market participants expect Governor Sanjay Malhotra to reassure that RBI will act against disorderly volatility in the rupee even as it balances forex intervention with banking system liquidity management.
Any hint of a more active approach towards defending the currency or measures to boost foreign inflows, especially with a US-India trade deal in limbo, will be closely watched.