The Reserve Bank of India may opt for a 25-basis point reduction in the repo rate at its December monetary policy meeting, as easing inflation and firm economic growth open a window for policy softening, according to a CareEdge report released on Tuesday.
Inflation Drops to Decadal Low
The rating agency noted that retail inflation fell to a 10-year low of 0.3 per cent in October, significantly below the RBI’s 4 per cent target. With the current repo rate at 5.5 per cent, the subdued inflation environment provides room for monetary easing.
CareEdge highlighted additional factors supporting stable prices, including steady Brent crude levels, adequate reservoir storage boosting rabi sowing, and muted global pricing pressures due to excess capacity in China.
Growth Momentum Remains Strong
India’s GDP expanded by 8.2 per cent in the second quarter of FY26, though CareEdge expects growth to moderate to around 7 per cent in the second half as the impact of front-loaded exports wanes and post-festival consumption slows. For the full fiscal, the agency projects GDP growth at 7.5 per cent.
With CPI inflation expected to average 3.7 per cent over the next year, CareEdge estimates the real policy rate at around 1.8 per cent, above the neutral 1 to 1.5 per cent range, signalling space for a rate cut.
External Sector Shows Resilience
Despite ongoing trade negotiations with the US and geopolitical uncertainties, India’s external position remains robust. Foreign exchange reserves rose by USD 27 billion to USD 693 billion by mid-November, the report observed.
CareEdge anticipates the RBI will lower its inflation forecast for FY26 to about 2.1 per cent and peg growth at roughly 7.5 per cent during the upcoming policy review.
