GR Poll: RBI Rate Cut in December - A Done Deal, But Tariffs War Remain A Concern

RBI MPC Repo Rate: The Reserve Bank of India (RBI) is widely expected to deliver another 25 basis points repo rate cut next week, according to an overwhelming number of economists polled by GoodReturns, amid trade worries and other geopolitical uncertainties worldwide.

Over 86 per cent of the 50 poll participants expected a cut despite a decade-low inflation, strong GDP growth prospects, and stable financial markets. This comes at a time when global investors await the US Federal Reserve's policy decision in the second week of December.

On the US tariff front, President Donald Trump on Thursday proposed sharply reducing, and possibly eliminating, the income tax, citing high tariff revenues. Speaking to US military members via video call, he said the government could substantially cut income tax in the coming years due to strong tariff collections.

"At the current US tariffs, GDP growth is likely to face more external pressure in the second half of this fiscal year. Certain labour-intensive sectors and micro, small, and medium enterprises are most vulnerable to the US tariff hike and need policy support. In such a situation, a rate cut can help further ease lending rates in the system," said Dipti Deshpande, principal economist at Crisil.

The RBI MPC meeting, led by Governor Sanjay Malhotra, will be held between 3 and 5 December. As per the latest GoodReturns poll, 43 analysts expected a cut while the remaining predicted the central bank to pause in the meeting.

GDP, Inflation & More

While the Indian economy grew at 8.2 percent in the July-September quarter, beating market expectations, the stock market is up over 9 percent this year so far. Nifty 50 and BSE Sensex have rallied hard, up around 10.44 percent and 9.2 percent year-to-date, respectively.

The RBI Monetary Policy Committee (MPC), in October, decided to keep the repo rate unchanged at 5.5%. The retail inflation (Consumer Price Index inflation) in October declined to a historic low of 0.25%, due to negative food costs and Goods and Services Tax (GST) rate cut. Meanwhile, Indian goods continue to face a 50 per cent tariff from the United States.

"Inflation is less of a worry this fiscal, with GST rate cuts and low crude prices likely to keep prices in check. The initiation of the US Federal Reserve's (Fed's) rate cuts has also added space for the RBI to cut rates," added Deshpande at Crisil.

With inflation easing sharply in October, some experts argue that the RBI's decision to maintain the status quo in its last policy review has now limited its tactical flexibility for the upcoming meetings.

A repo rate is the interest rate at which the RBI lends money to banks. Lower repo rate cut means cheaper loans, but lower returns on Fixed Deposits, Recurring Deposits, and other instruments. RBI's repo rate is one of its key tools to control inflation and boost economic growth.

RBI Meet: Expert Opinion

RBI MPC may cut repo rates in December on account of the present GDP projections and upbeat inflation data, as per Crisil Intelligence. As the United States Federal Reserve announced an October rate cut, and there are expectations of another cut in December, India's real interest rates continue to remain high, as highlighted by Motilal Oswal in its EcoScope report.

"While the deflation in food prices is expected to be temporary, core inflation, excluding the impact of gold, is running below the 4% target. This combination provides the MPC with room not only to cut rates by 25 bps in this policy but also to adopt a more accommodative liquidity stance to strengthen the transmission of policy easing," stated Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group

As the RBI has already announced a 100 bps rate cut, upward revision of inflation may prevent further rate cuts next year, according to Miguel Chanco, Chief Emerging Asia Economist at Pantheon Macroeconomics.

The RBI's December rate cut decision is also linked to the ongoing India-US trade deal talks. Amid the ongoing negotiations around the trade deal, RBI MPC's rate cut decision in December will be a close call, highlighted Aditya Vyas, Chief Economist at STCI Primary Dealer Limited.

The majority of economists believed that there may be an upward movement in India's retail inflation in November and December. However, the overall inflation rate will continue to remain below 4%. "Inflation has likely bottomed out, but will pick up slowly and is likely to remain comfortable till H1 next fiscal," stated Abhishek Upadhyay, Senior Vice President & Economist, ICICI Securities PD.

Key Factors That Will Define RBI's Rate Cut Trajectory in 2026

Growth projections in the second half of the financial year 2025-26, moderating inflation, status of India-US trade deal, etc, will define RBI's rate cut trajectory in 2026, according to Sarbartho Mukherjee, Senior Economist at CareEdge Ratings. Mukherjee believes that India's retail inflation has reached to its bottom levels and may see some consolidation in November and December, while remaining below 4% in 2026.

"India-US trade deal talks are going in a positive direction, apart from it India also has free trade deal talks with many global countries also with the EU also. So overall, there may be 25 to 50 basis points cut down as per many expert reports but what I believe this meeting of December 2025 we may see 25 basis points cut down and policy instances may remain Neutral for further rate cut possibilities in the future also," noted Abhishek Upadhyay Founder & Promoter of Power of Markets.