MPC Poll: Economists split on December policy between pause and 25 bps cut

The upcoming monetary policy committee (MPC) meeting on December 5 has economists sharply divided, with 8 out of the 15 economists polled expecting no rate cut and the other seven anticipating a 25 basis points (bps) reduction. Interestingly, two economists shifted their stance from a cut to a pause after the latest GDP numbers came in stronger than expected.

Why the Pause Camp Leans on Strong GDP and Policy Space

Economists leaning toward a pause cite strong GDP data, external pressures, and the need to preserve policy space, while those calling for a cut argue that subdued inflation and slowing nominal growth justify a cut. With liquidity management emerging as a common theme across both camps, the Reserve Bank of India’s (RBI) communication on OMOs and stance will be closely watched by markets.

Madan Sabnavis, chief economist at Bank of Baroda, said, “There is no reason for a rate cut. We need to preserve a 1.5% real rate futuristically. If inflation next year is above 4%, which it will be, we can’t lower it now and increase it later. Besides, 25 bps will make no difference to investment decisions.” 

Agreed Gaura Sengupta, chief economist at IDFC First Bank, highlighted the limited policy space as the reason for the pause. “It’s better to utilise it when downside risks to growth materialise,” she added, pointing to high-frequency indicators showing a broad-based recovery in rural demand in Q2FY26 and urban consumption picking up in Q3FY26 following GST cuts. 

On the external front, she expects positive signals from trade negotiations. Sengupta added that real rate analysis shows monetary policy is not a drag on growth, reflected in the sustained pickup in bank credit since August. The challenge, she stressed, is ensuring the banking system can support credit growth of 11–12% when deposit growth remains below 10%. “Surplus banking system liquidity consistently is more important, as we are towards the end of the rate cut cycle; thus, the stance remains neutral,” Sengupta said.

Rajni Thakur, chief economist at L&T Finance, also expects a pause. “I expect MPC to stay on pause in December, largely because the expected overshoot in growth and undershoot in inflation don’t justify a rate cut. There is a small probability of a rate cut if aspirational growth levels are invoked. Stance is expected to stay neutral. It’s prudent to keep options open.” Echoing the pause camp, Indranil Pan, chief economist at YES Bank, said, “The RBI is close to the end of its easing cycle, no change in stance is warranted.”

Anitha Rangan, chief economist at RBL Bank, said, “Externalities and currency pressure are high. Having spent over $20 billion in the spot market in Oct-Nov, a rate cut would be a waste of reserves.” She believes, “growth is not necessarily slow, and rate cuts do not necessarily revive growth; other policy measures have far more impact. With banks having challenges with deposits, incremental transmission will be a problem.” She added that the stance could shift to accommodative, the tone could remain neutral, and no revisions in GDP or inflation are expected. “I am looking out for the OMO announcement in the form of a calendar or quantum. Liquidity infusion will do the job instead of rates. Do not expect the next rate cut before April, although the possibility in February is high. April is safer as the US rate cut could warm up better by then.”

Case for a Cut

Meanwhile, seven economists see scope for a cut. Upasna Bhardwaj, chief economist at Kotak Bank, said, “We see a 25 bps rate cut with stance being unchanged, but guidance to suggest room for easing remains, due to nominal GDP still at 8.7% and inflation very low.” Kanika Pasricha, chief economic advisor at Union Bank of India, also argued that subdued inflation and undervalued currency created space for a cut. She feels that, with inflation subdued, nominal GDP growth is under pressure, and the currency has already seen significant depreciation. Given the REER (real effective exchange rates) undervaluation, the possibility of sharp foreign exchange pressure is limited. The MPC would go for a 25 bps cut. “We acknowledged risks of a prolonged pause, but would closely watch for any liquidity measures to support the continued availability of adequate liquidity for the credit creation process. In this regard, bond markets will also remain on close watch for any signalling or formal liquidity announcements, especially OMOs of any,” added Pasricha.

Sakshi Gupta, principal economist, HDFC Bank also expects easing. “Expect a rate cut at the December meeting, but no change in stance. Low inflation has opened up space for the RBI to support growth, especially as tariff risks continue to linger on and the frontloading of exports—that had supported growth so far—fades.” Adding to the pro-cut camp, Rajni Sinha, chief economist at CareEdge Ratings, stated that benign inflation provides the RBI with room to act despite strong GDP numbers. “Even while the Q2 GDP growth number is higher than expected, we feel the RBI could still cut the policy rate in the upcoming meeting. The very low inflation currently would give the central bank the opportunity to cut the rate as growth moderates in the second half of the year and trade-related uncertainties linger. The RBI will also consider that a part of the high growth in H1 FY26 is because of statistical factors like a low deflator and a favourable base of last year.”

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