MUMBAI: Reserve Bank of India (RBI) Governor Sanjay Malhotra voted for a 25-bps rate cut in December on the back of a benign inflation outlook and to support growth, according to the minutes of the Monetary Policy Committee (MPC) meeting released on Friday.
“Considering the benign inflation outlook – headline as well as core – real interest rates need to be lower. Therefore, I vote for a 25-bps rate cut,” said Malhotra.
The cut, he said, will also stimulate demand and support growth.
“Moreover, I am in favour of retaining the neutral stance which gives the requisite flexibility to remain data-dependent and act according to the evolving macroeconomic conditions and outlook,” said Malhotra.
The RBI cut the repo rate by 25 basis points (bps) to 5.25% on 5 December, citing a “rare goldilocks period” where growth remains robust and inflation benign, surprising a section of the market that expected a pause.
The Indian economy posted a surprising six-quarter high growth rate of 8.2% in the quarter ended September, significantly higher than the RBI’s 7% projection and the 7.2% median estimate in a Mint poll of 15 economists.
For FY26, the six-member MPC had raised its GDP forecast to 7.3% from 6.8% previously and lowered the retail inflation projection to 2% from 2.6%.
Reasonable scenario
The rate cut in December was the fourth reduction since February, with pauses in the August and October MPC meetings. The rate-setting panel has lowered the repo rate by 125 basis points in 2025, making loans cheaper and impacting deposit rates.
Some economists have discounted the possibility of further rate cuts. Neelkanth Mishra, chief economist at Axis Bank and head of global research at Axis Capital, said on Tuesday that the RBI is unlikely to cut interest rates further in the current cycle. Mishra said that keeping rates “lower for longer” is a reasonable scenario to factor in.
“I don’t expect more rate cuts because headline inflation will start rising,” said Mishra, also a part-time member of the Economic Advisory Council to the Prime Minister.
India’s retail inflation, as measured by the Consumer Price Index, stood at 0.7% in November, up from 0.25% in October.
