RBI MPC December: Why The Central Bank Is Likely To Hold Repo Rates Despite Low Inflation
The three-day policy review, which began on December 3, will conclude on December 5, when RBI Governor Sanjay Malhotra announces the final decision at 10 AM.
- RBI likely to keep repo rate unchanged at 5.5 percent.
- Inflation below 2 percent, but growth remains strong.
- RBI faces dilemma: low inflation versus robust economic performance.
The Reserve Bank of India (RBI) is widely expected to keep the policy repo rate unchanged at 5.5 per cent and maintain its current stance during the upcoming December meeting of the Monetary Policy Committee (MPC), according to a new report from YES Bank.
The three-day policy review, which began on December 3, will conclude on December 5, when RBI Governor Sanjay Malhotra announces the final decision at 10 AM.
The report suggests that the RBI is leaning towards holding rates steady, given that the “space for incremental rate cuts is limited” and any shift could go either way in what it calls a "touch‑and‑go policy", reported ANI. The bank said, “We expect the RBI to stay on a pause in December and keep rates and stance unchanged.”
The pause comes despite headline retail inflation remaining below 2 per cent, a level expected to persist for the next three to four months. At the same time, India’s economic performance has been stronger than anticipated, with Q2 FY26 GDP growth at 8.2 per cent, supported by robust high-frequency indicators through October.
However, not all incoming data has been upbeat. Recent prints for Manufacturing PMI and the Index of Industrial Production (IIP) have shown signs of moderation, signalling the possibility of cooling momentum in the months ahead.
Growth Momentum May Ease
The report noted that expansion could soften in the coming quarters as festive demand tapers, and the Centre’s capital expenditure cycle slows. The bank also expects inflation to rise slightly due to unfavourable base effects, although the overall price environment remains benign.
In this context, the report argues that maintaining the status quo would allow the central bank to preserve policy stability. It also expects the RBI to revise its inflation projections lower in the upcoming policy statement.
RBI May Cut Inflation Forecasts For FY26
The bank estimates the RBI may reduce its FY26 inflation forecast to 1.8–2.0 per cent, down from the current projection of 2.6 per cent. The bank also anticipates that the projection for Q1 FY27 could be revised down to around 4 per cent, compared to the RBI’s present estimate of 4.5 per cent.
The report, however, emphasises that the central bank faces a policy dilemma: while inflation below 2 per cent might normally justify a rate cut, economic growth continues to outperform expectations.
Why Experts Call For A Rate Pause?
According to the report, holding rates steady remains the prudent option for four reasons:
- Upcoming new data series - A revised CPI and GDP series will be introduced in February 2026, and changing policy just before a statistical reset could complicate assessment.
- Low inflation driven by specific factors - The current dip is largely due to vegetables and GST cuts rather than broad disinflation.
- Persistently high credit growth - Credit expansion continues to outpace deposit growth, and lower deposit rates could affect banking system liquidity.
- External pressures - Reduced foreign inflows and depreciation pressure on the rupee make it risky to narrow the interest rate gap between India and the US at this juncture.
The report concluded that keeping the repo rate and stance unchanged in December would help the RBI maintain stability while preserving flexibility for future decisions.
The MPC’s resolution and the Governor’s statement will provide clearer guidance on the central bank’s assessment of inflation, growth, and global headwinds as India enters the final quarter of FY26.
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