India’s economic landscape is witnessing a rare combination of robust GDP growth and all-time low inflation, raising expectations that the Reserve Bank of India (RBI) could slash the repo rate in its upcoming monetary policy review. With GDP growth soaring to 8.2% in Q2 FY2025-26 and headline inflation dropping to just 0.25% year-on-year in October, economists and market watchers believe the central bank has room to adopt a more accommodative stance.
Background: Current Economic Scenario
India’s economy has outperformed expectations in recent quarters:
- GDP Growth: The economy expanded at 8.2% in Q2 FY2025-26, driven by manufacturing and services.
- Inflation: CPI inflation fell to 0.25%, the lowest in the current CPI series.
- Fiscal Position: GST cuts and food price deflation have eased household costs.
- Global Context: India’s growth stands out amid global uncertainties, strengthening investor confidence.
Pivot Table: Key Economic Indicators
| Indicator | Current Value | Previous Year | Trend |
|---|---|---|---|
| GDP Growth (Q2 FY2025-26) | 8.2% | 5.6% | Rising |
| CPI Inflation (Oct 2025) | 0.25% | 4.1% | Falling |
| Repo Rate | 5.50% | 6.25% | Stable since Oct 2025 |
| CAD (Q1 FY2025-26) | 0.2% of GDP | 0.9% | Improving |
| Equity Markets | Upward trajectory | Moderate growth | Positive |
Why A Repo Rate Cut Is Likely
Economists argue that the RBI has strong reasons to consider a rate cut:
- Low Inflation: With food prices deflating and GST cuts easing costs, inflationary pressures are minimal.
- Growth Momentum: Sustained GDP growth above 8% signals resilience and capacity for expansion.
- Liquidity Needs: A rate cut could support credit growth and investment.
- Global Signals: Other central banks are easing rates to stimulate growth, giving RBI room to follow.
Table: Possible Outcomes Of Repo Rate Cut
| Outcome | Impact On Economy | Beneficiaries |
|---|---|---|
| Lower Borrowing Costs | Boosts consumption & investment | Households, SMEs |
| Increased Liquidity | Supports credit growth | Banks, NBFCs |
| Market Rally | Positive sentiment in equities | Investors |
| Export Competitiveness | Weaker rupee possible | Exporters |
| Inflation Risk | Minimal due to current low CPI | Consumers |
RBI’s Balancing Act
Despite strong arguments for a rate cut, the RBI must weigh risks:
- Global Uncertainty: Weakening trade and geopolitical tensions could affect stability.
- Fiscal Discipline: Excessive liquidity may strain fiscal management.
- Long-Term Inflation Risks: Sustained rate cuts could reignite inflation if demand surges.
- Neutral Stance: RBI has so far maintained repo at 5.50% with a neutral stance static.pib.gov.in.
Expert Opinions
- Economists: Suggest a 25-50 basis point cut is possible in December policy review.
- Market Analysts: Expect equities to rally if RBI signals dovish intent.
- Policy Makers: Stress the importance of balancing growth with financial stability.
- Global Observers: Note India’s unique position of high growth and low inflation compared to peers.
Public Sentiment
- Businesses: Anticipate cheaper loans to expand operations.
- Consumers: Hope for lower EMIs on housing and personal loans.
- Investors: Expect positive momentum in stock markets.
- Critics: Warn against complacency, urging vigilance on inflationary risks.
Future Outlook
- Short-Term: RBI’s December 2025 policy review will be decisive.
- Medium-Term: Sustained growth could push India toward a $4 trillion economy by FY2026.
- Long-Term: Balanced monetary policy will be key to maintaining stability and growth.
- Global Impact: India’s trajectory could influence emerging market strategies worldwide.
Conclusion
The RBI faces a pivotal decision: whether to cut the repo rate amid record-low inflation and robust GDP growth. While the case for easing is strong, the central bank must balance growth ambitions with long-term stability. For households, businesses, and investors, the outcome could shape borrowing costs, market sentiment, and India’s economic trajectory in 2026.
Disclaimer: This article is based on publicly available economic updates, expert commentary, and media analysis. Readers are advised to follow official RBI announcements and verified sources for detailed information.
