RBI likely to hold rate at 5.5 pc in policy announcement on Friday; inflation forecast may be revised lower: Report

NEW DELHI: The Reserve Bank of India (RBI) is expected to keep the policy repo rate unchanged at 5.5 per cent and maintain its existing stance in the upcoming December Monetary Policy Committee (MPC) meeting, a report by YES Bank said.

The report highlighted that the central bank is likely to remain on pause as the space for incremental rate cuts is limited, making it a “touch-and-go” policy where the decision could swing either way. It stated, “We expect the RBI to stay on a pause in December and keep rates and stance unchanged”.

The report further noted that while headline retail inflation has remained below the 2 per cent mark and is expected to stay low over the next three to four months, India’s economic growth has continued to surprise positively.

Growth in the second quarter of FY26 stood at 8.2 per cent, and high-frequency data for October also indicated steady expansion. However, some recently released indicators, such as Manufacturing PMI and IIP, were recorded on the lower side, reflecting potential softening in momentum.

The report added that growth could face challenges in the quarters ahead as festive demand fades and the Centre’s capex spending slows down. At the same time, retail inflation is expected to rise slightly due to base effects. In this backdrop, the report said that the RBI should remain on hold.

The report also expects the RBI to revise its inflation forecasts downward. The report projected that the central bank may lower its inflation forecast for FY26 to 1.8-2.0 per cent, compared with the current estimate of 2.6 per cent.

It added that the Q1FY27 inflation projection may also be brought down to around 4 per cent, from the RBI’s current estimate of 4.5 per cent, while YES Bank estimates inflation at 3.1 per cent.

According to the report, the RBI faces a difficult policy choice, growth remains robust, while inflation being below 2 per cent could justify a rate cut.

However, the report voted in favour of no action for four key reasons, the launch of a new CPI and GDP series in February 2026, current low inflation led mostly by vegetables and GST cuts, credit growth surpassing deposit growth which could impact lending if deposit rates fall further, and lower foreign inflows coupled with rupee depreciation pressure, making it unsuitable to reduce the interest rate gap between the US and India.

The report concluded that keeping rates and stance unchanged in December will help the RBI maintain stability and retain policy flexibility going forward. The (monetary policy committee) MPC meeting is under way from December 3-5, and the final policy decision will be announced by RBI Governor Sanjay Malhotra at 10 am on December 5. (ANI)