After two days of deliberations of its monetary policy committee (MPC), the Reserve Bank of India governor Sanjay Malhotra is set to reveal the panel’s decision on rate cuts tomorrow at 10:00 IST.
The decision will come just five days before the US Federal Reserve chair Jerome Powell makes his announcement on Fed rate cuts in the world’s largest economy — a signal markets worldwide look out for. International market players are optimistic that the Fed will reduce rates by 25 basis points. (A basis point, or bps, is 0.01%.)
The focus of the MPC meeting in Mumbai, running from 3 to 5 Dec, is to assess the repo rate, liquidity levels, inflation trends, and growth projections, as well as other significant policy matters. The MPC has convened against the backdrop of robust economic growth and historically low inflation.
A Mint poll of 13 economists earlier this week showed nine expecting a pause, while four are anticipating a 25 bps cut to 5.25%, underscoring how finely balanced the RBI decision is likely to be.
With the two central banks holding their policy meetings just a week apart, there is significant anticipation among investors regarding whether the RBI will reduce the repo rate.
Earlier this year, the RBI lowered the repo rate by 100 bps in three separate instances beginning in February, aided by a decline in inflation trends.
Let’s examine the opinions of experts and the effect of a US Federal Reserve rate reduction on the Indian stock market.
Impact of US Fed rate cut on Indian stock market
US Fed rate cut generally benefits Indian equities in the medium term, primarily through more affordable global liquidity, increased foreign investment, and more favorable domestic interest rate conditions.
Abhinav Tiwari, Research Analyst at Bonanza, explained that a Fed rate cut matters for India because it narrows the interest rate gap between the two countries. When US rates fall, the yield advantage of investing in India becomes more attractive, reducing the risk of foreign investors pulling money out of Indian debt markets.
Further, Tiwari, added that this easing in external pressure gives RBI more flexibility to adjust its own policy without triggering heavy foreign institutional investor outflows or sharp movements in the rupee.
Will RBI cut repo rate?
As global markets grow more assured that the Fed will reduce rates by 25 bps, attention has now turned to whether the Indian central bank will also implement a rate cut.
Experts have differing views on whether the RBI will implement a rate cut or not.
Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd, believes it to be a rare tricky situation.
Vijayakumar highlighted the fact that The rate decision of the MPC will be mainly influenced by the growth-inflation dynamics. Hence, according to him, from this perspective, the decade-low inflation of 0.25% in October demands a rate cut. Governor Malhotra’s earlier statement that there is space for a rate cut, reinforces this view.
Nonetheless, when asked about the necessity of a monetary stimulus for the economy’s growth, given that it is operating at full capacity with an 8.2% growth rate in Q2 FY26, Dr Vijayakumar clearly stated that the answer is a emphatic ‘no’.
Further, he added that also, the steep depreciation in INR and the continuing weakness in the currency demands no change in rate.
In the same vein, Mohit Gulati, CIO and managing partner of ITI Growth Opportunities Fund Foreign, said that a rate cut is not needed right now. Growth remains strong, core inflation stays well-anchored, and liquidity—not the policy rate—is the more effective lever at this moment.
“If anything, the RBI is more likely to ease conditions through a CRR adjustment or a more innovative liquidity measure rather than cutting rates prematurely just because the Fed shifts policy. India’s economic cycle is structurally ahead of the US, and we should focus on domestic fundamentals—not imported expectations,” added Gulati. CRR, or cash reserve ratio, refers to the percentage of deposits with a bank that it has to hold in cash.
On the other hand, Tiwari of Bonanza is of the opinion that a 25 bps cut would help ease borrowing costs, support credit growth, and improve liquidity at a time when global financial conditions are becoming more accommodative.
While RBI has remained cautious due to currency volatility and external risks, Tiwari believes that the expected Fed cut significantly reduces those concerns. A lower US rate structure would ease dollar strength and stabilize global capital flows, allowing the RBI to prioritize domestic growth and lower real rates without risking major rupee depreciation, according to him.
“In this situation, a small 25 bps rate cut looks quite likely. With inflation under control at home and global central banks also moving toward lower rates, the December MPC meeting could be the start of the RBI slowly reducing interest rates again,” said Tiwari.
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.