RBI MPC Meet: Experts Bet on Rate Pause Despite Low Inflation and Strong GDP

The latest economic data has given the MPC a massive headache, really. It’s created mutually opposing forces, or nothing.⁵

• Growth is Strong: GDP for the second quarter (Q2 FY26) came in surprisingly robust at ⁶8.2\%.⁷ The economy is vigorous, which typically means no rate cut.⁸

• Inflation is Weak: Headline CPI inflation dropped to a low of ⁹0.25\% in October.¹⁰ That’s the lowest in the current CPI series, well below the RBI’s ¹¹$4\%$ medium-term target.¹² Low inflation usually screams “cut rates.”¹³

The consensus view, as of now, leans heavily towards a pause, keeping the repo rate at ¹⁴5.5\% for the fifth consecutive time.¹⁵

 The Case for a Pause

Why wait, even with inflation so low?

• No Immediate Pressure: Experts like Sugandha Sachdeva believe the strong domestic growth and buoyant consumption mean the RBI is “not under any immediate pressure“ to ease policy.¹⁶ Premature easing could risk “overstimulating an already vigorous economy.”¹⁷

• Limited Space: Yes Bank Ecologue noted that the space for “incremental rate cuts by the RBI is limited“ right now.¹⁸

• Waiting Game: Maintaining the rate allows the central bank to fully assess the impact of the ¹⁹100text{bps}$in cuts already delivered this year.²⁰

 Forecast Revisions and Future Easing

Even if there’s no cut this Friday, the outlook is dovish.

• Inflation Forecast: The RBI is widely expected to revise its inflation forecast downward.²¹ The CPI is likely to average around ²²2\% for FY26 and a modest ²³3.9\% for FY27—comfortably in the band.²⁴

• GDP Forecast: Conversely, the Q2 surprise means the RBI is likely to improve the GDP forecast (current estimates at ²⁵6.8\%).²⁶ Yes Bank Ecologue expects the full year FY26 growth to be around 7.4\%.

• Future Cut Hint: The central bank is likely to keep the door open for a possible ²²25 text{bps} cut in the last quarter of this fiscal year, if conditions truly warrant it.²⁸

The main drag on future growth, according to Yes Bank, is the projected weakening of Central government capital expenditure and the continuing issue of high trade deficits, especially since the US-India trade deal is not yet finalized—that’s what makes the balancing act so complicated.

They are trying to balance growth optimism with the need to preserve stability amid global risks.²⁹ It’s a close call, but the smart money is on the status quo until early 2026.

End…..