Will December bring the rate cut India has been waiting for? RBI governor sparks buzz

RBI Governor Sanjay Malhotra signals clear scope for a repo-rate cut in the December policy review as inflation cools and macro indicators strengthen, boosting market expectations and easing bond yields.

Reserve Bank of India (RBI) sees real “scope” for a key repo rate cut at its December monetary-policy review, Governor Sanjay Malhotra has said in an interview.

Governor Malhotra told ZEE Business that macro-economic numbers and inflation prints coming in lately have reinforced the expectation that there will be further easing in the rates. “The Monetary Policy Committee (MPC) had signalled the scope of further rate cuts in October and the latest data and macro-indicators reinforce the belief that there is definitely scope,” he said.

He also added that the MPC will take a call on it in the upcoming policy review.

Bond yields down after his comments

On the back of the Governor’s comments, benchmark 10-year bond yield declined four basis points to 6.48 percent.

Inflation prints add to the case.

The RBI Governor also pointed out that October retail inflation, as measured by the Consumer Price Index (CPI), grew by just 0.25 percent – the lowest since the current series of data began in 2012. Economists are now pencilling in the chances of the CPI undershooting the RBI’s earlier projection of 2.6 percent for the fiscal year to March 31 2026 and coming in well below the 4 percent medium-term target.

The central bank, however, foresees the inflation to edge up to around 4 percent in the next quarter on fading favourable base-effects.

Rupee & volatility

Talking about the volatility in currency markets and the rupee’s weakness, Malhotra said that on the external front, the recent weakness in the Indian rupee was primarily a result of inflation differentials with advanced economies. The RBI Governor also highlighted that a 3-3.5 percent decline in value is fairly normal for the rupee and then RBI’s focus has been more on managing excessive volatility rather than defending a particular level of the rupee.

The rupee, which hit a fresh low against the US dollar recently, has been among Asia’s worst-performing currencies this year, down about 4 percent against the greenback.

Policy-rate outlook & what it means

The RBI has cut the benchmark rate by 100 basis points since February, but left it unchanged in October. However, on the back of an improving inflation outlook and supportive macro-data, markets are now looking at the RBI cutting the repo rate in the December policy, which is scheduled to be announced on December 5, 2025.

If delivered, it would suggest that the central bank is open to tilting more clearly towards supporting growth-especially as the risk to inflation remains contained for now and external headwinds can be managed. For borrowers and markets, a rate cut would mean lower borrowing costs and could boost investment. The fall in bond yields following Malhotra’s comments is already an indication of that view beginning to get priced in.

On the downside

However, even as the RBI Governor sounded a positive note, the central bank remains watchful. Inflation is expected to pick up going forward and global spillovers (including from rate actions in advanced economies and currency movements) are a concern. The rupee’s recent slide will also mean the RBI will have to keep a close eye on external stability while calibrating its domestic policy. Malhotra’s comments on volatility, rather than a rigid defence, suggests the RBI is prepared for the currency to move both ways-but will intervene if instability threatens growth or inflation goals.