The Reserve Bank of India (RBI) could announce a 25-basis point cut in the repo rate at its December monetary policy meeting, supported by a sharp fall in inflation and robust economic growth, credit rating agency CareEdge said in a report on Tuesday.
The report noted that inflation eased to a decadal low of 0.3 per cent in October, well below the RBI’s 4 per cent target, creating room for monetary easing. The repo rate currently stands at 5.5 per cent.
"Factors such as stable Brent crude prices, healthy reservoir levels supporting rabi sowing, and muted price pressures arising from excess capacity in China should help prevent any sharp rise in inflation," the report stated.
GDP growth accelerated to 8.2 per cent in the second quarter of FY 2025-26, though CareEdge expects it to moderate to around 7 per cent in the second half as the impact of front-loaded exports wanes and post-festival consumption softens. For the full fiscal year, it forecasts GDP growth at 7.5 per cent.
CareEdge said that with CPI inflation likely to average around 3.7 per cent over the next 12 months, the real policy rate at current levels would be about 1.8 per cent—higher than the estimated neutral range of 1–1.5 per cent—signalling room for rate cuts.
Despite external challenges, including prolonged trade negotiations with the US and geopolitical tensions, India’s external sector remains resilient, the report said, highlighting that foreign exchange reserves have risen by USD 27 billion to USD 693 billion as of mid-November.
CareEdge expects the RBI to revise its FY26 inflation projection to around 2.1 per cent and its growth forecast to around 7.5 per cent in the December policy review.