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RBI Policy Preview: Why Rates May Stay at 5.5% Amid Inflation Shift

The RBI is widely expected to keep interest rates unchanged this week. A new report suggests the central bank will hold the line despite inflation being very low. Strong economic growth and other financial stability concerns are likely keeping policymakers cautious. The decision will be announced by Governor Sanjay Malhotra on Friday morning.

Key Points: RBI Expected to Hold Repo Rate at 5.5% in December MPC Meeting

  • YES Bank report expects RBI to hold repo rate steady at 5.5% in December policy
  • Growth remains robust at 8.2% in Q2 FY26, but momentum may soften
  • Headline retail inflation is below 2%, but expected to rise due to base effects
  • Report projects RBI may lower FY26 inflation forecast to 1.8-2.0% from 2.6%
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RBI likely to hold rate at 5.5% in policy announcement on Friday; inflation forecast may be revised lower: Report

YES Bank report predicts RBI will hold rates at 5.5% and maintain stance, with a likely downward revision to its inflation forecast for FY26.

"We expect the RBI to stay on a pause in December and keep rates and stance unchanged - YES Bank Report"

New Delhi, December 4

The Reserve Bank of India (RBI) is expected to keep the policy repo rate unchanged at 5.5 per cent and maintain its existing stance in the upcoming December Monetary Policy Committee (MPC) meeting, a report by YES Bank said.

The report highlighted that the central bank is likely to remain on pause as the space for incremental rate cuts is limited, making it a "touch-and-go" policy where the decision could swing either way.

It stated "We expect the RBI to stay on a pause in December and keep rates and stance unchanged".

The report further noted that while headline retail inflation has remained below the 2 per cent mark and is expected to stay low over the next three to four months, India's economic growth has continued to surprise positively.

Growth in the second quarter of FY26 stood at 8.2 per cent, and high-frequency data for October also indicated steady expansion.

However, some recently released indicators, such as Manufacturing PMI and IIP, were recorded on the lower side, reflecting potential softening in momentum.

The report added that growth could face challenges in the quarters ahead as festive demand fades and the Centre's capex spending slows down. At the same time, retail inflation is expected to rise slightly due to base effects.

In this backdrop, the report said that the RBI should remain on hold.

The report also expects the RBI to revise its inflation forecasts downward. The report projected that the central bank may lower its inflation forecast for FY26 to 1.8-2.0 per cent, compared with the current estimate of 2.6 per cent.

It added that the Q1FY27 inflation projection may also be brought down to around 4 per cent, from the RBI's current estimate of 4.5 per cent, while YES Bank estimates inflation at 3.1 per cent.

According to the report, the RBI faces a difficult policy choice, growth remains robust, while inflation being below 2 per cent could justify a rate cut.

However, the report voted in favour of no action for four key reasons, the launch of a new CPI and GDP series in February 2026, current low inflation led mostly by vegetables and GST cuts, credit growth surpassing deposit growth which could impact lending if deposit rates fall further, and lower foreign inflows coupled with rupee depreciation pressure, making it unsuitable to reduce the interest rate gap between the US and India.

The report concluded that keeping rates and stance unchanged in December will help the RBI maintain stability and retain policy flexibility going forward.

The (monetary policy committee) MPC meeting is underway from December 3-5, and the final policy decision will be announced on December 5 by RBI Governor Sanjay Malhotra at 10 AM.

- ANI

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Reader Comments

A
Arjun K
Inflation below 2% is great news for the common man! 🎉 But I agree with the pause. The reasons given make sense, especially with the new CPI series coming and the rupee pressure. Better safe than sorry.
R
Rohit P
As a small business owner, I was hoping for a slight rate cut to ease borrowing costs. Festive demand is fading and capex is slowing, as the article says. A small cut could have given a boost to investment. Just my two paise.
S
Sarah B
Interesting analysis. The "touch-and-go" policy description is apt. The RBI has a tough job balancing growth, inflation, and external factors like the US interest rates. Holding seems like the prudent middle path.
V
Vikram M
The downward revision of the inflation forecast is the real story here. If they project it around 1.8-2.0%, that's fantastic for long-term planning. Hope this translates to more stable prices for essentials like petrol and pulses.
K
Karthik V
While the pause is understandable, I respectfully think the RBI could be a bit more proactive. If inflation is so low and driven by veggies/GST cuts, a small symbolic cut could signal confidence and support the growth momentum before it softens further.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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