RBI MPC Meet Begins: Will the Central Bank Signal a Rate Cut as Inflation Hits Record Lows?

Mumbai | December 3 – The Reserve Bank of India’s Monetary Policy Committee (MPC) opened its final policy review of the calendar year on Wednesday, setting the stage for a closely watched decision at the end of the three-day deliberation. With growth running ahead of expectations and consumer inflation plumbing multi-year lows, the December meeting has become one of the most finely poised in recent quarters.

The rate-setting panel, chaired by RBI Governor Sanjay Malhotra, will announce its verdict on the repo rate at 10 a.m. on Friday, followed by a press briefing at noon.

A Pause So Far – But Conditions Are Changing Fast

The repo rate has remained unchanged at 5.5% since August, following a 100-basis-point easing cycle earlier in the year. When the MPC met in October, the committee opted for a pause once more, pointing to a rapid slowdown in inflation that allowed policymakers some breathing room.

Since then, however, the backdrop has shifted notably.

India’s GDP surged 8.2% in Q2 FY26, outstripping expectations and adding momentum to the earlier 7.8% expansion in the June quarter. At the same time, retail inflation has collapsed far more sharply than anticipated. The Consumer Price Index (CPI) fell to 0.25% in October, staying below the RBI’s lower tolerance threshold of 2% for a second straight month. A combination of GST cuts, easing food prices and a favourable base effect pushed headline prices to multi-decade lows.

The result: the MPC must now navigate an unusual combination of red-hot growth and ultra-soft inflation, a mix rarely seen in India’s monetary policy landscape.

What the MPC Will Assess Over the Next Two Days

The six-member committee comprising three RBI officials and three external economists appointed by the government will evaluate whether the economy’s resilience justifies waiting longer before cutting rates or whether the disinflationary trend is strong enough to resume easing.

The MPC members for the December 2025 meeting include:

• Sanjay Malhotra, Governor and Chairperson
• Indranil Bhattacharyya, Executive Director, Monetary Policy
• Poonam Gupta, Deputy Governor overseeing policy
• Saugata Bhattacharya, economist
• Ram Singh, academic representative
• Nagesh Kumar, research institute head

Their mandate remains unchanged: maintain inflation at 4%, within the legally defined band of 2% to 6%, while supporting stable and sustainable economic growth.

Although inflation is well below the tolerance zone now, the committee must judge whether the fall is temporary or structurally entrenched.

October Meeting Recap: A Neutral Stance and Lower Forecasts

In October, the MPC lowered its inflation projection for FY26 to 2.6%, down sharply from earlier estimates of 3.1% in August and 3.7% in June. Growth expectations were raised to 6.8%, reflecting stronger-than-expected momentum across sectors.

Quarterly projections at the time indicated:

• Q1 FY26: 7.0% growth
• Q2 FY26: 6.4%
• Q3 FY26: 6.2%
• Q4 FY26: 6.4%

On inflation, the MPC anticipated:

• Q2 FY26: 2.6%
• Q3 FY26: 1.8%
• Q4 FY26: 1.8%
• Q1 FY27: 4.5%

The committee maintained a neutral stance, emphasising flexibility based on incoming macroeconomic data.

What Has Shifted Since the October Review

While growth has surprised on the upside, some high-frequency indicators are showing early signs of moderation. The manufacturing PMI eased to 56.6 in November, from a robust 59.2 in October still strong, but the slowest pace of improvement in nine months.

Even so, with retail inflation hovering near zero and GDP momentum resilient, the December meeting has become a potential inflection point for India’s monetary policy cycle.

Rate Cut or Extended Pause? RBI’s Balancing Act

Markets remain divided on whether the RBI will opt for another pause or begin the next phase of rate reduction. The central bank must weigh the comfort of unusually low inflation against the need to avoid premature easing while global supply conditions and domestic demand remain fluid.

For now, most indicators suggest that the repo rate of 5.5% already offers a meaningful positive real rate, giving the MPC the option to keep policy settings unchanged while signalling an openness to future cuts should inflation remain subdued.

How the RBI frames the forward guidance may end up being more important than the headline interest-rate decision itself.

Decision on Friday: Growth vs Inflation in Spotlight

The outcome of the December 3–5 RBI MPC meeting will be announced on Friday at 10 a.m., and the policy tone will provide the clearest indication of how the central bank plans to balance strong economic expansion with an inflation trajectory that has undershot the target band.

With GDP growth accelerating and inflation at levels unseen in years, the December review is shaping up to be one of the most consequential policy decisions of FY26.