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RBI Rate Cut Debate: Inflation vs. Growth?
1 Dec
Summary
- Economists are divided on an RBI rate cut due to low inflation and strong GDP.
- One view favors a cut to maintain the inflation mandate symmetrically.
- Another perspective urges caution, balancing low inflation with robust growth.
The Reserve Bank of India faces a divided opinion among economists regarding its next policy decision on December 5, 2025. While headline GDP growth stands strong at 8.2%, persistently low inflation, hovering around 2-3%, prompts calls for a rate cut. Economists like Sajjid Chinoy of JPMorgan argue that maintaining the inflation mandate symmetrically necessitates a cut, suggesting current data indicates economic slack.
Conversely, others express caution. Soumya Kanti Ghosh of State Bank of India acknowledges inflation undershooting projections but warns against automatic rate cuts, citing global uncertainty. Sonal Varma of Nomura highlights the strong GDP figures but questions whether they fully reflect underlying demand, particularly given low deflators which may exaggerate real growth.
The upcoming decision hinges on the RBI's interpretation of its mandate amidst conflicting economic signals. Policymakers must weigh the implications of strong GDP growth against the evidence of subdued inflation and decide whether to provide monetary stimulus or conserve policy space for future uncertainties.
