By Reuters MUMBAI | December 1, 2025

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India’s robust growth numbers for the September quarter are raising questions about the need for lower interest rates even as record-low inflation gives the central bank ample room to resume reductions later this week, analysts said.

India’s economy expanded at a sharper-than-expected clip of 8.2 per cent in the July-September quarter, prompting analysts to raise their full-year growth estimates to above 7 per cent. That means the world’s fifth-largest economy is expanding at a pace close to its estimated potential growth of 6.5 per cent-7 per cent—the rate an economy can expand without sparking inflation.

India’s retail inflation, however, slowed to a record-low 0.25 per cent in October and is expected to remain benign for months.

“The December RBI policy will be set against a backdrop of resilient growth and ultra-low inflation. The stellar growth numbers reaffirm our view of a pause,” said Gaura Sen Gupta, chief economist at IDFC First Bank. “Space for easing is limited and should be utilised when downside risks to growth materialise.”

A majority of economists in a Reuters poll conducted ahead of the GDP data release had expected the Reserve Bank of India’s (RBI) key policy repo rate to be pared by 25 basis points to 5.25 per cent on December 5, followed by a pause through 2026. The RBI’s Monetary Policy Committee (MPC) had previously lowered the benchmark rate by 100 basis points in the first half of 2025 but has held it steady since August.

The Real Rate Debate

 

The high growth print has tempered some expectations for an immediate cut, shifting the focus to the debate over the real policy rate.

“We think inflation has fallen more than anticipated and outlook for inflation also appears benign. So we expect the MPC to cut once (25 bps) to adjust real policy rate to reflect the change in inflation outcomes and outlook,” said A. Prasanna, chief economist at ICICI Securities Primary Dealership.

At the current level of retail inflation, the neutral real rate—the repo rate minus inflation—is sharply higher. Those arguing for a cut say that growth will weaken in the second half of India’s financial year ending on March 31, 2026, due to factors like the punitive U.S. import tariff of 50 per cent on Indian goods, which is expected to hurt exports and employment across sectors like textiles and jewellery.

Barclays in a note stated that the strong GDP print is “too hot to ignore” and that they no longer expect a rate cut this week. However, investors remain watchful, with expectations now tempered but not entirely dismissed. Economists expect the RBI to further reduce its full-year inflation forecast from 2.6 per cent, while the full-year GDP estimate could be raised from the current 6.8 per cent.