Reserve Bank of India (RBI) Governor Sanjay Malhotra has indicated that there is potential for further policy rate cuts, citing encouraging macroeconomic data, as retail inflation hits a record low of 0.25% in October. Speaking at a recent press briefing, Malhotra explained that the current economic conditions provide a basis for monetary easing, even as market trends suggest a possible pause.

The Monetary Policy Committee (MPC) had already reduced rates by 100 basis points in early 2025 but has maintained a steady benchmark rate since August. However, economists are now projecting a possible rate cut in December as inflation continues to ease. Minutes from the October MPC meeting revealed that members see the possibility of additional easing if current trends persist.

The sharp drop in India's retail inflation to a record low of 0.25% in October is attributed to falling food prices and tax relief on consumer goods. Malhotra stated that the improving inflation outlook provides policymakers with increased flexibility.

Following Malhotra's comments, India's 10-year benchmark bond yield edged lower, reflecting investor anticipation of future monetary support. However, overnight indexed swap (OIS) markets continue to price in stable policy rates, indicating cautious optimism but a lack of firm consensus on the timing of the next move. Bond traders are awaiting clearer signals from inflation data and MPC communication.

Malhotra also addressed the recent decline in the rupee, which slipped to a record low of 89.49 against the US dollar. He described the rupee's slide as part of a broader trend, noting that it has weakened over 4% in 2025, making it among Asia's worst-performing currencies. Malhotra stated that the RBI does not defend any specific exchange level but focuses on managing volatility. He added that the rupee has historically depreciated by around 3% annually.

The Governor emphasized that the RBI's primary mandate is price stability, with growth as a secondary objective. He characterized the RBI as an "all-rounder" that prioritizes "bowling," which is equivalent to price stability, but is also ready to "hit fours and sixes" if required.

The MPC's upcoming meeting, scheduled for December 3-5, will be crucial in determining whether a rate cut materializes. While there is certainly room to lower rates, the decision ultimately rests with the committee. The current economic indicators suggest there is scope for a repo rate cut.