The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is set to convene next week, and analysts are keenly debating whether the central bank will continue its easing cycle despite surprisingly robust GDP numbers. The MPC's meeting, scheduled for December 5, 2025, takes place against a backdrop of unexpectedly strong economic growth and persistently low inflation.

India's economy has shown remarkable resilience, with GDP growth for the September quarter reaching a six-quarter high of 8.2%. This figure surpasses both economists' projections and the RBI's own forecasts. The strong GDP growth could deter the MPC from lowering interest rates. Prior to the GDP data, a majority of economists anticipated a 25-basis-point cut in the repo rate on December 5, especially considering retail inflation was at a record low of 0.25% in October and expected to remain below the central bank's 4% target in the near term. The 10-year benchmark government bond yield rose 4 bps after the release of GDP data, signalling that the market scaled back bets of a rate cut next week.

However, recent data indicates inflation is at historical lows. CPI inflation plummeted to a record low of 0.25% in October, and some economists predict it will remain below 2% for FY26, significantly under the RBI's 4% target. This scenario potentially allows the MPC to maintain its accommodative stance and support economic growth through further rate cuts.

Several global banks and economists had already anticipated a 25 basis points repo rate cut in December, potentially marking the end of the current easing cycle. These expectations were fueled by near-zero CPI inflation in October, bolstering confidence that the MPC could ease rates even if growth exceeded the central bank's projections. The RBI has already lowered the repo rate by 100 bps since February 2025, implementing cuts of 25 bps in February and April, and a larger 50 bps cut in June. The repo rate has remained at 5.50% since June. A December cut to 5.25% would put policy close to the pre-COVID low of 5.15% in October 2019.

Now, with stronger-than-expected GDP figures, the decision is less clear-cut. Some experts argue that the robust growth may deter the MPC from cutting rates, while others maintain that the persistently low inflation provides sufficient room for further easing. Some economists expect the MPC to lower the repo rate only if growth falters. The September quarter GDP data could be the deciding factor for the MPC on Dec. 5.

Even with strong real GDP growth, some expect a 25-bps rate cut next week "as inflation trajectory remains benign". Growth, on the other hand, has exceeded expectations. However, some are of the opinion that space for easing is limited and should be utilized when downside risk to growth materialises.

Looking ahead, the RBI is projected to adopt a data-dependent approach. After a possible rate cut in December, the central bank is expected to take a "wait-and-watch" approach, evaluating the impact of its three-pronged easing cycle on interest rates, liquidity, and regulatory measures.