Key Points:
- RBI repo rate cut expectations rise as Governor Malhotra signals room for easing in the December policy review.
- Softer inflation trends and falling bond yields strengthen market confidence in a December rate reduction.
- Rupee depreciation, global pressures, and policy cues shape investor sentiment ahead of the MPC meeting.
Reserve Bank of India Governor Sanjay Malhotra said on Monday that India’s latest macroeconomic indicators support the possibility of a RBI repo rate cut in the December monetary policy review. His remarks prompted a decline in government bond yields, with markets already expecting a RBI repo rate cut at the meeting scheduled for Dec. 5, 2025.
Malhotra’s comments on policy outlook
Malhotra said the monetary policy committee had indicated space for additional easing during its October meeting. “The monetary policy committee had signaled the scope of further rate cuts in October and the latest data and macro indicators reinforce the belief that there is definitely scope,” Malhotra told Zee Business on Monday. He added that the final decisionon a possible RBI repo rate cut rests with the committee when it meets in December.
His comments immediately influenced the bond market. India’s benchmark 10-year bond yield fell four basis points to 6.48%, reflecting expectations that the central bank may shift toward further monetary accommodation. The RBI has lowered the benchmark rate by 100 basis points since February but maintained the rate in October, signaling a pause while awaiting clearer data trends related to any future RBI repo rate cut.
Inflation and market expectations
India’s consumer inflation, measured by the consumer price index, increased 0.25% in October. This was the lowest monthly reading since the current CPI series began in 2012. Analysts say the recent trend suggests inflation may fall below the RBI’s projection of 2.6% for the fiscal year ending 31 March 2026. They also note that the reading could remain well under the medium-term target of 4%, giving the central bank more flexibility to adjust rates in response to broader economic conditions, including decisions tied to a potential RBI repo rate cut.
The central bank has forecast that inflation will return to 4% in the next quarter as base effects diminish. Market expectations continue to build around the possibility of a cut at the December meeting, supported by softer price pressures and consistent signals from policymakers. A one-basis-point movement represents one-hundredth of a percentage point, a metric that investors closely track when interpreting monetary policy signals related to a RBI repo rate cut.
Currency outlook and external factors
Malhotra also addressed the recent depreciation of the rupee, saying the downward movement reflects the inflation differential between India and advanced economies. He said an annual depreciation of 3% to 3.5% is typical for the currency and emphasized that the RBI does not seek to defend any specific exchange rate level. Instead, the central bank aims to prevent sharp fluctuations that could destabilize financial markets or disrupt trade flows.
The rupee reached a fresh low against the dollar on Friday and is currently Asia’s worst-performing currency this year, having weakened about 4% against the U.S. dollar. The decline has been driven by global currency pressures, interest-rate differentials, and sustained demand for the dollar. Malhotra said the central bank’s focus remains on maintaining orderly market conditions.
Together, the signals on inflation, bond yields, and currency movements reinforce market expectations ahead of the December policy meeting. The combination of softening price data and comments from the governor has strengthened the view that the monetary policy committee may consider easing rates, with a RBI repo rate cut emerging as a key point of discussion as it evaluates the broader economic environment.
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