RBI may deliver one more rate cut in December, says report

The Reserve Bank of India (RBI) could lower its benchmark repo rate by another 25 basis points to 5.25% in December 2025, despite recent signals from Governor Sanjay Malhotra suggesting limited monetary policy space, according to a report by BMI, a Fitch Solutions company.

In its latest report titled “Reserve Bank of India Not Done Easing in 2025”, BMI said it expects inflation and growth to fall short of the RBI’s projections, creating room for another rate cut this year.

The RBI had already surprised markets in June with a larger-than-expected 50-basis-point reduction, bringing the repo rate down to 5.5%.


“Despite Governor Sanjay Malhotra seemingly closing the door on further rate cuts in the coming months, we expect another 25bps in December 2025,” the report stated.

Also Read: World Bank raises India’s FY26 growth forecast to 6.5%, cites tariff risks ahead

Furthermore, BMI said that India’s real policy rate will remain high, even with an additional cut, at around 2.5%, underscoring that “the current stance is overly restrictive relative to economic conditions.”

Inflation and growth outlook

BMI forecasts consumer inflation to average 3.0% in FY26, below both the RBI’s 3.7% estimate and its 4.0% medium-term target. "Multiple factors, including declining global commodity prices, beneficial weather conditions supporting agricultural output, weakening domestic demand pressures and limited wage growth despite tighter labour markets, will ensure that inflation remains well within the RBI's target 2.0-6.0% range."

On the growth front, BMI projects India’s GDP to expand by 6.0% in FY2025–26, lower than the RBI’s 6.5% estimate, suggesting that economic activity remains weaker than policymakers acknowledge. “We expect Q3 2025 data to reveal economic weakness more pronounced than currently recognised by policymakers, justifying the additional cut we anticipate in December following a likely pause in
August,” the report added.

Global yield differentials and rupee outlook

The report notes that by the end of 2025, the RBI would have eased policy by 125 basis points, compared with a 50-basis-point reduction by the US Federal Reserve. As a result, BMI expects bond yield differentials to move in favour of the US dollar in the coming months.

BMI highlighted that the rupee has already fallen 2.3% against the dollar since July 1, trading around ₹87.5 per USD as of August 28. The depreciation was partly attributed to the impact of Donald Trump’s tariff measures on India.

However, the report added that investor confidence in the US has also been shaken by “Trump’s erratic policymaking” and concerns over the independence of the Federal Reserve, tempering the dollar’s strength.

BMI now expects the rupee to weaken slightly to ₹89.5 per USD by end-2025.