RBI's Interest Rate Dilemma: To Cut or Not to Cut?

As the Reserve Bank of India's MPC prepares for its imminent policy decision, industry leaders and economists are split over whether a rate cut will be announced. Strong GDP growth and easing inflation offer opposing signals. The decision will be announced by RBI Governor Sanjay Malhotra on 5th December.

By Nikhil Dedha — The Reserve Bank of India (RBI) is on the cusp of a pivotal policy announcement as the Monetary Policy Committee (MPC) prepares its decision amidst conflicting signals from the economy. While India's GDP growth reaches a noticeable 8.2% in the second quarter, many economists are bracing for a pause, though industry players anticipate a 25 basis-point rate cut to maintain economic momentum.

In an exclusive interview with ANI, Mehul Pandya, the MD and Group CEO of CareEdge Ratings, highlighted the dichotomy that both robust GDP growth and historically low inflation create in interest-rate discussions. 'Central banks usually refrain from interest rate cuts during periods of strong economic activity,' Pandya stated while noting that low inflation typically prompts rate reductions.

Meanwhile, Mayur Modi of Moneyboxx Finance Limited argues that India's economic surge affords the RBI policy leverage, as strong domestic demand and improved fiscal conditions ease risks associated with more accommodative policies. Modi's view is echoed by Rohit Arora of Biz2X, who sees easing inflation as a sign that the RBI could adopt a more supportive stance.

As the nation awaits the RBI's decision, the MPC meeting is scheduled for December 3-5, with the policy verdict expected on December 5 at 10 AM by Governor Sanjay Malhotra.

(With inputs from agencies.)