MPC likely to remain on extended pause; further rate cuts hinge on inflation trend: Report

The Monetary Policy Committee (MPC) of India’s Reserve Bank is expected to maintain current interest rates for the foreseeable future, with potential rate cuts only materializing if inflation remains significantly below projections, according to ICICI Bank’s Economic Research Group. This assessment follows scrutiny of the central bank’s December policy meeting minutes.

“The MPC appears inclined toward an extended pause. Future policy easing would require sustained lower-than-expected inflation readings. February’s meeting will likely prioritize evaluating methodological changes in updated GDP and CPI data series,” the ICICI Bank analysis noted.

The released MPC minutes highlighted a softening inflation outlook, though committee members stressed forthcoming rate decisions would require evolving price stability patterns. “Current real interest rates already approach the lower bound of the RBI’s comfort zone given 4% inflation projections through FY27, leaving limited space for immediate aggressive action,” stated the report.

The central bank is anticipated to maintain status quo at its February review while awaiting revised statistical methodology impacts on key economic indicators. Policymakers emphasized the need to reassess macroeconomic conditions once new GDP and CPI calculation frameworks take effect.

While acknowledging moderating growth signals in H2 FY26—evidenced by softening PMI, industrial output, and export metrics—the minutes revealed inflation developments remain central to policy calculus. Some members cautioned that persistently low inflation could pressure corporate profitability, particularly for smaller enterprises.

The MPC’s December 2025 meeting concluded with a 25-basis-point reduction, maintaining a neutral policy stance. RBI Governor Sanjay Malhotra described India’s economic conditions as entering a “rare goldilocks phase,” combining accelerated expansion with subdued price pressures.

Recent GDP growth strengthened to 8.2% year-on-year in Q2 FY26, propelled by consumption recovery and the September 2025 GST restructuring. The central bank subsequently elevated its full-year growth projection to 7.3%, while sharply reducing its FY26 CPI inflation forecast to 2.0% from 2.6%.

Published on December 21, 2025