Mumbai – The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) commenced its three-day meeting today, December 3, 2025, amidst divided market expectations regarding a potential rate cut or a continued pause. The outcome of the meeting, which will be Governor Sanjay Malhotra's final monetary policy decision for 2025, is slated to be announced on Friday, December 5, at 10:00 AM.
The six-member panel will deliberate on the current economic landscape, considering both growth and inflation data to determine the appropriate course for monetary policy. The Indian economy has demonstrated considerable resilience, with GDP expanding robustly while inflation has cooled to multi-year lows. This presents a complex scenario for the MPC, leading to divergent views among experts and market participants.
Arguments for a rate cut center on the premise that softening inflation provides the MPC with greater flexibility to prioritize growth without jeopardizing macroeconomic stability. Consumer price inflation dropped to a series low of 0.25% in October, driven largely by a decline in food prices. Some analysts believe that a 25 basis points cut could support the economy at a time when price pressures are subdued, potentially boosting consumption cycles and stimulating credit demand across key segments. If a rate cut does occur, many experts predict the rate will remain at that level through 2026. The RBI has already cut the key interest rate (repo) three times this year, bringing the total deduction to 100 basis points.
Conversely, strong economic performance, with GDP expanding by 8.2% in the second quarter of FY26, has led some to believe that the repo rate will remain unchanged. This pace of growth has encouraged expectations of stability in policy action. An assessment by Bank of Baroda suggests that the central bank will likely keep the repo rate unchanged at 5.50% and maintain its neutral stance. The report pointed to continued strong economic performance, with resilient urban spending and a strong rural economy expected to sustain momentum into the third quarter.
The last two MPC meetings saw the RBI keep the rate unchanged. Some economists anticipate the MPC to retain a 'neutral' monetary policy stance, which would allow the rate to move in either direction, depending on the evolving economic data.
Several domestic and international factors could influence the MPC's decision. Domestic data points such as auto sales figures and PMI data will provide insights into overall economic activity. Furthermore, upcoming US economic data, ahead of the Federal Reserve's December policy meeting, could affect global market sentiment and influence foreign fund flows into India.
The outcome of the MPC meeting is crucial for borrowers, investors, and corporations, as it will likely set the tone for lending and liquidity in early 2026. The decision will be closely monitored, as it will provide guidance on the direction of interest rates and the overall monetary policy stance for the coming months.
