RBI MPC Minutes Reveal More Room for Rate Cuts amid Likely Growth Slowdown

The Reserve Bank of India’s Monetary Policy Committee flagged risks to domestic economic growth and emerging deflationary trends, indicating greater room for further rate cuts, the minutes of the December MPC meeting showed.

The six-member rate-setting panel of the RBI has cut 125 basis points cumulatively in 2025, bringing the benchmark repo rate to 5.25% from 6.50% a year ago. At the December policy meet, RBI’s MPC unanimously cut the repo rate by 25 bps while keeping the stance neutral, with one member voting a shift to an “accommodative” stance.

The Indian economy expanded 8.2% in the quarter ended September, beating the RBI and Street projections with the fastest pace in six quarters. However, growth is expected to moderate in upcoming quarters as the full impact of the 50% tariff from the US weighs on the export sectors.

Washington imposed a sweeping 25% reciprocal tariff on New Delhi in August, quickly followed by a punitive tariff of 25% for India’s purchase of oil and energy from Russia. This brought the total tariffs on India to 50% ‑‑ of the highest faced by Asian economies.

"Although domestic economic activity remains resilient in Q3, weakness in some leading high-frequency indicators is suggestive of a deceleration in the growth momentum in H2 vis-à-vis H1," RBI Governor Sanjay Malhotra said. He added that while the December rate cut will stimulate demand and drive growth, however, the February policy decision will be “data dependent” and the central bank will closely monitor the evolving global macroeconomic environment.

At the December MPC meet, the central bank upwardly revised the GDP forecast to 7.3% from 6.8% earlier, and lowered the inflation projection to 2% from 2.6%. However, the RBI lowered the GDP forecast for the first half of next year to 6.7%-6.8%.

Global Headwinds Pose Risk

According to the minutes, external risks including the US tariffs and geopolitical tensions would likely weigh on India’s export sector and private investments. Exports will also face competition from Chinese shipments, said MPC member Ram Singh, who voted for an "accommodative" stance.  "Together, these effects also strengthen the case for demand-supportive rate cuts without compromising the predictability of the inflation trajectory," Singh said.

MPC member and Deputy Governor Poonam Gupta, who took charge in April, said current economic data could be interpreted as indicating “slack in the economy.”

“Not just headline and core inflation, but most other nominal indicators of the economy are prevailing at levels that suggest the economy is not showing any signs of overheating at this point,” Gupta said. “Instead, one could interpret the data as indicating that there is slack in the economy.”

The RBI’s next policy meet is scheduled for February 4-6. Market participants expect another 25 bps rate cut, provided inflation remains subdued. India’s Wholesale Price Index (WPI) fell to -0.32% in November, while the Consumer Price Index (CPI) inflation print fell to a record low of 0.25% in October, both well below RBI’s lower tolerance band of 2% target.