RBI Governor Hints at Scope for Further Rate Cuts as Inflation Drops to Record Low

Reserve Bank of India Governor Sanjay Malhotra indicated that there may be space for further policy rate cuts, supported by encouraging macroeconomic data. Speaking at a press briefing, Malhotra said current economic conditions provide grounds for monetary easing, even as market trends point to a possible pause.

India’s Monetary Policy Committee (MPC) cut rates by 100 basis points in the first half of 2025 but has held the benchmark rate steady since August. Economists are now projecting a potential rate cut in December as inflation eases.

Inflation at Multi-Year Low Strengthens Case for Easing

India’s retail inflation fell sharply to 0.25% in October, marking its lowest reading on record. Malhotra said the improving inflation outlook gives policymakers greater flexibility. Minutes of the October MPC meeting also showed that panel members see scope for additional easing if current trends continue.

MPC Track Record and Policy Outlook

The MPC delivered a cumulative 100 bps rate cut in early 2025. The rates have remained unchanged since the August policy review.

Many economists anticipate a cut in the upcoming December meeting. Market indicators, such as overnight indexed swap (OIS) rates, still reflect expectations of a status quo.

Bond Market Reaction and Interest-Rate Expectations

Following Malhotra’s comments, India’s 10-year benchmark bond yield edged lower, reflecting investor expectations of future monetary support.

• OIS markets continue to price in stable policy rates
• Bond traders are waiting for clearer signals from inflation data and the MPC communication

The contrasting market responses indicate cautious optimism but no firm consensus on the timing of the next move.

RBI View on Rupee Depreciation

The Governor also addressed the recent decline in the rupee, which slipped to a record 89.49 on Friday. The currency has weakened by over 4% this year, placing it among the worst-performing Asian currencies due to portfolio outflows and trade-related concerns.

Read More: S&P Projects 6.5% GDP Growth for India in FY26.

Conclusion

The RBI’s latest signals point to a potential shift towards further policy easing as inflation reaches historic lows and macroeconomic indicators improve. While economists are anticipating a rate cut in December, market pricing remains mixed.

The trajectory of the rupee and incoming inflation data will play an important role in shaping the MPC’s next steps. For now, the central bank appears open to further accommodation, provided domestic conditions remain supportive.

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