Mumbai, December 5, 2025 – All eyes are on Reserve Bank of India (RBI) Governor Sanjay Malhotra today as he announces the bi-monthly monetary policy, following the conclusion of the Monetary Policy Committee's (MPC) three-day review. The announcement comes at a critical juncture, with economists and markets divided on whether the RBI will opt for a 25-basis point repo rate cut or maintain the current stance.
The MPC's decision is particularly challenging this year, with the committee grappling with a trilemma of robust economic growth, a weakening rupee, and benign inflation. While inflation has eased, with both headline and core inflation running below the target band, nominal GDP growth has softened, and real rates have risen. Moreover, global central banks have already begun easing cycles. These factors create space for the RBI to consider a rate cut as an early move in a broader normalization path.
However, the rupee's recent slump, being the worst-performing Asian currency this year, complicates the path to a rate cut. The rupee has faced the brunt of punitive US tariffs and equity outflows, leading to concerns about currency stability. Some experts warn that a rate cut could further pressure the rupee, which has already depreciated significantly.
Expectations are mixed, with some economists anticipating a 25-basis point cut to 5.25%, while others expect the MPC to maintain the status quo. Those favoring a rate cut point to the significant decline in retail inflation, which has created room for adjustment. They argue that the inflation battle is largely won for now, and the risks ahead tilt more toward supporting financial conditions and anchoring growth momentum.
Conversely, those advocating for a pause emphasize the strong GDP growth and the need to maintain currency stability. They suggest that cutting rates could exacerbate the rupee's depreciation and potentially lead to financial instability. The RBI is also navigating a complex situation with a high difference between the overnight repo and benchmark bond yields, impacting liquidity.
The MPC's decision will be influenced by several factors, including the latest economic data, global economic conditions, and the need to balance growth, inflation, and currency stability. The policy tone will be crucial, with markets closely watching for any shift towards a neutral stance or commentary highlighting sustained disinflation and easing global conditions, which would signal the beginning of an easing cycle.
For markets, a rate cut is generally seen as constructive. Bond yields would likely respond immediately, while equities could see strength in rate-sensitive sectors such as banks, real estate, and consumer cyclicals. The broader signal would be that policy and macro conditions are finally aligned, offering a more supportive backdrop for 2026.
RBI Governor Sanjay Malhotra's statement will be streamed live at 10 am on the RBI's YouTube channel, its X account, and the central bank's official website. Market participants, economists, and the general public await the decision, which will have significant implications for the Indian economy.
