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RBI Rate Cut Ahead? Why HSBC Predicts December Policy Ease Amid Growth Fears

HSBC's research arm is predicting a rate cut from the Reserve Bank of India next week. They believe inflation staying low gives the central bank room to act. While current growth is strong, there are signs it might not last. The report suggests the economy could soften next year, making a pre-emptive rate cut a sensible move.

Key Points: HSBC Forecasts RBI 25 bp Rate Cut in December MPC Meeting

  • HSBC forecasts a 25 bp rate cut, lowering the repo rate to 5.25% on December 5
  • Strong Q2 GDP growth of 8.2% YoY may have peaked, with signs of softening
  • Report cites inflation remaining well below target as a key reason for monetary easing
  • Growth could weaken by March 2026 due to fiscal contraction and slowing exports
2 min read

RBI to cut policy repo rate by 25 bp on Dec 5: HSBC

HSBC projects a 25 basis point repo rate cut to 5.25% by the RBI on December 5, citing inflation below target and potential future growth softening.

"We expect the RBI to ease policy rates in the upcoming December policy meeting. – HSBC Global Investment Research Report"

New Delhi, Dec 1

Since inflation is set to remain well below target for the foreseeable future, HSBC Global Investment Research on Monday projected that the RBI will cut rates by 25 bp during its monetary policy committee (MPC) meeting on December 5 -- taking the policy repo rate to 5.25 per cent.

Growth has been strong so far, benefitting from the front loading of government spending and GST-cut led retail spending.

However, the November Flash manufacturing PMI (56.6) indicated that GST-led boost may have peaked with the overall new orders coming in soft, said the report.

“Growth is strong for now, but could soften in the March 2026 quarter as the fiscal impulse becomes contractionary and exports slow. We expect the RBI to ease policy rates in the upcoming December policy meeting,” the report mentioned.

The July-September quarter GDP growth came in at 8.2 per cent YoY, higher than 7.8 per cent in the previous quarter and higher than “our above-consensus forecast of 7.5 per cent”. While GVA growth came in at 8.1 per cent, nominal GDP grew 8.7 per cent.

The GDP momentum was clearly higher than our above-consensus forecast. There are some good reasons for the strength, said the report.

One, GST rate cuts were implemented on the September 22, but the announcement was made on August 15.

“We think that production picked up in anticipation of a rise in consumer demand. Two, our recent work indicates that lower income states are starting to rise, even growing faster than the higher income states,” the HSBC report mentioned.

This, too, could possibly explain the strength in India's growth momentum. After all, national GDP is the sum of state Gross State Domestic Products (GSDP).

According to the report, India’s growth has held up decently despite the 50 per cent reciprocal tariff on India's exports by the US since August.

- IANS

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Reader Comments

R
Rohit P
Strong growth numbers are impressive, but I'm concerned about the "soft" new orders mentioned. The rate cut might help, but we need more focus on manufacturing jobs and supporting MSMEs to sustain this momentum.
A
Aman W
The point about lower-income states growing faster is the real story here. If development is becoming more inclusive, that's a fantastic long-term sign for the economy. Hope this trend continues.
S
Sarah B
As an investor, this is a key signal. A pre-emptive cut by the RBI shows prudent management. It's better to act now to support growth before potential softening, rather than wait for a downturn. Smart move.
V
Vikram M
While a rate cut is good, I hope the RBI and government are also planning for the "contractionary fiscal impulse" mentioned for next year. We can't rely only on monetary policy. Need a coordinated strategy.
K
Karthik V
8.2% GDP growth is no joke! 🇮🇳 The US tariff issue is a concern, but our domestic market is strong enough to absorb some shock. This rate cut should further fuel investment. Bullish on India's story.

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