RBI expected to cut interest rate to 5.25% as inflation drops: Poll

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The Reserve Bank of India will cut its key interest rate by 25 basis points to 5.25 per cent on December 5, according to a majority of economists polled by Reuters who expect the rate to stay there through 2026.

A sharp fall in food prices and tax cuts on consumer goods drove India's consumer inflation to a record low of 0.25 per cent in October, giving the central bank room to support weak consumption despite renewed pressure on the rupee.

The currency hit a new low of 89.49 against the dollar on Friday.

RBI Governor Sanjay Malhotra said this week that recent economic data suggested there was still scope to cut interest rates. The RBI has held rates since August, after a cumulative 100 basis points of cuts in the first half of the year.

US tariff concerns

Nearly 80 per cent of economists, 62 of 80, in a November 18-26 Reuters poll forecast the RBI would lower the repo rate to 5.25 per cent at the end of its December 3-5 policy meeting. The remaining 18 forecast no change.

Most economists expect rates to remain at that level at least until the end of next year.

"With the RBI likely to further revise its fiscal year 2025-2026 inflation forecast lower from the current 2.6 per cent forecast in the December policy (meeting), the case for a 25 bps rate cut becomes stronger," said Kaushik Das, India chief economist at Deutsche Bank.

Rate cut expectations come despite estimates that India's economy likely grew 7.3 per cent in the July-September quarter, and as a separate Reuters poll forecast the Indian stock market would hit new highs by mid-2026.

However, a 50 per cent US import tariff on Indian goods remains in place despite repeated trade discussions, keeping private investors wary and prompting foreign investors to pull nearly $17 billion from Indian equities this year.

"There is no visibility on when a trade deal will happen... if that does not happen, then the case for (another) rate cut amplifies," said Madhavankutty G, chief economist at Canara Bank, who expects rates to remain at 5.25 per cent through the first half of next year.

The poll also showed India's economic growth expected to average 6.8 per cent and 6.5 per cent this fiscal year and next, with inflation projected to average 2.2 per cent and 4.0 per cent respectively.