The country’s economic growth figures for the second quarter have been revealed. The country’s GDP growth has been more than 8 percent, shattering all estimates. On the other hand, inflation for the month of October is at a record low level. In such a situation, the biggest question is whether in the coming days the Monetary Policy Committee of the country’s banking regulator Reserve Bank of India will decide to cut the repo rate on December 5 or not. Many experts believe that RBI MPC will put the cut in interest rates on hold this time. Also, reduction in interest rates can be seen after the presentation of the budget.
Experts say that the full relief of the one percent reduction made by RBI in the current year has not reached the common people. On the other hand, rate cut is done for economic growth. The growth of the second quarter has been seen at more than 8 percent. It is estimated that the country’s growth will be more than 7.5 percent in the third and fourth quarters also. In such a situation, there is no justification for reducing the rate cut. Recently, the country’s largest government lender SBI had also said in its report that RBI can once again put the MPC repo rate on hold. Let us try to understand what experts have to say about RBI repo rate?
Can RBI take a tough call again?
The central bank has reduced the interest rates by 100 basis points (1 percentage point) since February and brought the repo rate to 5.50 percent and has not made any change in it since August. Now the biggest question is whether the banks have passed on its full benefits to the common people or not. In fact, interest rates on outstanding loans have fallen by 54 basis points, while interest rates on outstanding deposits have seen a decline of 20 basis points. On the other hand, there has been a reduction of 100 basis points in interest rates on new loans and 89 basis points on new deposits. It can be understood from these figures that only the new loan takers are getting the benefit of RBI’s cut so far and not the other or old ones.
Two giants changed their stance
Two institutions, which had earlier predicted interest rate cuts, have changed their stance. Barclays and ICRA Ratings made this revision after the release of fresh GDP data and are now indicating to RBI to maintain status quo. On the other hand, economists point to lower nominal GDP growth, increased tariff-related risks, inflation likely to be below RBI estimates in the next financial year and a prevailing sentiment of “if not now, then when”.
Barclays Bank’s India Chief Economist Aastha Gudwani said that we no longer expect the RBI MPC to cut policy rates in the upcoming meeting. He further said that on Friday the real GDP growth rate of the second quarter of FY 26 was much higher than our and RBI’s expectations. We believe that the growth rate has reached its peak and expect that the growth rate in the second half of FY 2026 will be slower than the first half.
Gudwani had earlier called for a cut in interest rates, calling inflation “too low to ignore”. On the other hand, IDFC First, Bank of Baroda, Icra Ratings, SBI, ICICI Bank, Yes Bank, RBL Bank and Barclays Bank have not given any indication of change in interest rates.
Growth and inflation lower than expected
The Indian economy grew 8.2 percent in July-September, the fastest in the last six quarters, against the RBI’s estimate of 6.8 percent growth rate. Nominal GDP grew at the rate of 8.7 percent in the second quarter, whereas last year it was 8.8 percent. With this, retail inflation declined to 0.25 percent in October. This is the lowest since the start of the current series in 2015. RBI has estimated inflation at 2.6 percent for FY 26, 4 percent in Q4 FY 26 and 4.5 percent in Q1 FY 27. The central bank has reduced its full-year inflation forecast for fiscal year 2026 to 2.6 percent from 4.2 percent in February.
He indicated a cut
Madhavi Arora, chief economist at MK Global Financial Services, said the FY26 inflation estimate is now less than 2 per cent, which means there is a risk of further reduction in RBI’s FY26 inflation estimate by about 50-60 basis points. He further said that it may be in favor of cutting interest rates in December. However, it is a close contest. Most of the economists expecting a cut in interest rates have also expressed the same opinion. HDFC Bank Chief Economist Sakshi Gupta said that the nominal growth rate of 8.7 percent in the second quarter of FY26 is an indication that caution is needed.
He further said that this year, it has been a story of high growth rate and low inflation. Therefore, it is difficult to take a decision on the upcoming interest rates of RBI. He feels that there is scope for reduction in interest rates by 25 basis points. Apart from these two, IndusInd Bank, Union Bank of India, Canara Bank, Axis Bank, CRISIL Ratings, ANG Bank, Jana Small Finance Bank, ICICI Securities PD, India Ratings, Kotak Mahindra have also said about reduction in interest rates.
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