With the Indian rupee hitting a new low at 90.17 against the dollar just ahead of the Reserve Bank of India’s (RBI) Monetary Policy Committee meeting, most economists believe that a rate cut is unlikely to cut rates on December 5. The strong performance on the growth front – second quarter GDP growth at 8.2% — will also give the central bank comfort to wait and watch.
“MPC will not cut interest rates, opting instead for a pause,” said Madan Sabnavis, chief economist at Bank of Baroda. He added that the stance is reinforced by the rupee’s depreciation, with rates potentially harming rather than helping the economic situation.
What did Madan Sabnavis say?
“Going ahead with inflation expected to remain above 4%, further rate cuts are not justified. Lowering rates at this juncture would deter foreign capital inflows, weaken the balance of payments, and exacerbate liquidity pressures. The idea that cutting rates helps the currency is a market misconception, it would achieve nothing positive and could, in fact, work negatively,” Sabnavis added.
“Markets may always want lower rates, but economics demands rational trade-offs, not sentiment-driven decisions,” says Sabnavis. Echoing a similar view, Gaura Sengupta, chief economist at IDFC First Bank, said, “We have a pause view for December as growth recovery is showing signs of becoming broad-based.
What do analysts suggest?
Moreover, real rate analysis indicates that monetary policy is growth-supportive at current policy rates. The space for rate cuts is limited and should be used when downside risks to growth materialise.” Sengupta highlighted that, from a currency perspective, reduced RBI intervention indicates that the central bank is prioritising monetary policy independence over exchange rate control. “The reduced FX intervention will limit the drain on domestic liquidity, preventing tightness in liquidity conditions.”
Kunal Sodhani, Head of Treasury at Shinhan Bank, added that with growth running at a robust 8.2% and the rupee already under pressure, the RBI may have limited room to consider a rate cut in the December 2025 policy. “Any premature easing risks fuelling additional currency weakness, which could amplify imported inflation at a time when global financial conditions remain tight, and capital flows are sensitive to interest-rate differentials,” he said.
Sodhani added that even as headline inflation appears comfortable, core price pressures and services inflation still require careful anchoring, making policy restraint more prudent than stimulus. With domestic liquidity largely adequate and the economy operating above its potential, he expects the RBI to prioritise stability over accommodation, opting to wait for clearer signals before shifting its monetary stance.
MPC’s primary focus is on controlling inflation and fostering growth, the exchange rate is not a direct concern for the MPC unless its depreciation significantly impacts inflation projections,” says Suvodeep Rakshit, chief economist at Kotak Institutional Equities, who sees MPC cutting interest rate by 25 bps, especially given a nominal GDP growth of 8.7%. “Benign inflation provides scope for rate cuts to stimulate growth, and thus the argument for holding back rate cuts as ammunition for future crises is unwarranted. MPC will likely favour scenarios based on current metrics rather than speculative future scenarios,” he added.
The MPC’s decision on Friday will be closely watched as a signal of whether the RBI chooses to anchor stability or nurture India’s growth story, while FX markets await clarity on whether the central bank will step in to stabilise the currency. “Technically, the rupee is deeply oversold, and a move back above 89.80 is essential for any meaningful recovery,” says Jateen Trivedi, Vice President Research– Commodity and Currency at LKP Securities who believes that the currency’s weakness has been driven by the absence of a confirmed India–US trade deal, record-high commodity prices, and muted RBI intervention, leaving markets anxious for clarity on the central bank’s stance.
