Editor’s Note
The RBI’s Monetary Policy Committee has signaled a data-dependent approach to future interest rate decisions, balancing inflation management with the need to support economic growth. This article outlines the current stance and the factors guiding the central bank’s policy path.
RBI MPC Keeps Eye on Economic Data, Future Interest Rate Moves in Focus
The Reserve Bank of India’s Monetary Policy Committee (MPC) has indicated that future steps on interest rates will be decided based on data and global conditions, despite inflation remaining favorable, in order to stimulate economic growth.
Manojit Saha
Last Updated- January 05, 2026 | 8:19 AM IST
Nagesh Kumar, a member of the Reserve Bank of India’s Monetary Policy Committee, says the inflation rate is in line with expectations and rates are currently low. According to him, geopolitical uncertainties, including high Trump tariffs imposed on India, and delays in concluding negotiations are impacting business. Edited excerpts from an interview with Manojit Saha…
What was the main reason for your vote in favor of a repo rate cut in the December policy meeting?
“The Reserve Bank’s Monetary Policy Committee has cut the repo rate by 100 basis points in a phased manner to support growth. The impact of these cuts has nearly reached lending and deposit rates. We saw the possibility of a further 25 basis point cut because economic activity reached its peak in the second quarter of the current financial year. Fortunately, the inflation situation is favorable, providing an opportunity for a policy move. The overall inflation rate was 0.3 percent in October 2025, while the inflation rate estimate for the entire 2025-26 year is 2 percent. The inflation rate is as expected.”
How is the delay in the trade deal with the US hurting trade? Was the delay in the US trade deal considered in the MPC’s December decision?
“It is clear that geopolitical uncertainties, including high Trump tariffs imposed on India, and delays in concluding negotiations are impacting business. Trump tariffs have affected labor-intensive industries such as textiles, garments, leather goods, gems and jewelry, and processed foods like shrimp, which have good trade with the US.”
“These are sectors where the MSME sector dominates and accounts for 40 percent of manufacturing sector jobs. As a result, the impact of US tariffs is being felt significantly on MSMEs and jobs. In such a scenario, the MPC found a case for supporting by boosting demand. For effectiveness, growth stimulus should be coordinated in fiscal and monetary policy actions.”
Is there room for further reduction in interest rates?
“I believe the current inflation rate is too low to be comfortable, especially if precious metals like gold are excluded, the inflation rate is below the lower bound of the target. We know that very low inflation is not better for a developing country like India, as it signals weak demand. This creates the possibility of taking policy decisions to stimulate growth. Future decisions will be made according to data on the trajectory of growth and inflation.”
Do you think growth peaked in the second quarter of FY2026, and will it slow significantly in the second half?
“However, the celebration of this ‘Goldilocks moment’ (high growth, low inflation) was tempered by the trends in October 2025. After the second quarter results, it became clear that economic activity peaked in the second quarter. In October 2025, the pace of industrial activity began to slow and reached its lowest level in 14 months. High-frequency indicators like the Manufacturing PMI fell from 59.2 to 56.6. Merchandise exports declined by 12 percent in October 2025. Export orders were the weakest, pushing new orders to a 12-month low. The rupee came under pressure and crossed the psychological level of 90 against the dollar. The Reserve Bank’s Industrial Outlook Survey also indicates softening in business and expectations.”
First Published – January 5, 2026 | 8:19 AM IST
