In a fresh outlook for India’s monetary policy, Goldman Sachs has forecast that the Reserve Bank of India (RBI) could announce another rate cut in December 2025. The move would follow the central bank’s recent efforts to balance inflation management with economic growth, as consumer prices show signs of easing.
Why a December Cut is Likely
According to Goldman Sachs economist Santanu Sengupta, benign inflation levels and declining food prices are creating the conditions for an additional reduction in interest rates. Inflation, which had been a persistent concern for policymakers, has now moderated toward the RBI’s target band of 4% (+/-2%), thanks to improved food supply and stable global commodity prices.
This has given the central bank breathing room to shift its focus towards stimulating growth, particularly amid signs of sluggish demand in some sectors of the economy.
The Broader Economic Context
India’s retail inflation (CPI) has been trending lower in recent months, with August data showing consumer price inflation at around 4.7%, down from over 6% earlier this year. Food inflation, which makes up nearly 50% of the CPI basket, has softened significantly due to easing vegetable and cereal prices.
Meanwhile, India’s GDP growth remains resilient at over 6.5% for FY25-26, but economists warn that external headwinds, including slowing global demand and volatile crude oil prices, could weigh on momentum.
Implications of a Rate Cut
If the RBI proceeds with a December rate cut, it would:
- Lower borrowing costs for businesses and consumers, potentially boosting investment and consumption.
- Support the housing and auto sectors, which are sensitive to lending rates.
- Encourage private investment, particularly in manufacturing and infrastructure.
- Affect the rupee, as lower rates may reduce the yield appeal of Indian assets for foreign investors.
However, Goldman Sachs cautions that any move will depend on sustained inflation moderation. A sudden spike in global commodity or food prices could delay or scale down the magnitude of easing.
Market Reaction & Expert Views
Indian equity markets welcomed the forecast, with banking and real estate stocks edging higher on hopes of softer lending conditions. Bond yields also saw mild declines as investors priced in a more accommodative policy stance.
Independent economists, however, note that while a December cut looks possible, the RBI is likely to adopt a measured approach. “The central bank will not risk inflationary flare-ups ahead of the Union Budget,” one policy analyst commented.
What to Watch Next
- October and November CPI data – Will confirm if food price relief is sustained.
- Global crude oil trends – A rise in oil prices could offset domestic inflation gains.
- RBI’s December MPC meeting – The key policy event where a rate cut decision will be finalized.
Summary
- Goldman Sachs expects RBI to cut rates again in December 2025, citing easing inflation and falling food prices.
- A cut would reduce borrowing costs, aid growth, and support rate-sensitive sectors.
- Risks remain from volatile commodities and global demand weakness.
- Investors await upcoming inflation data and RBI guidance before making big bets.
References:
- Reserve Bank of India
- Goldman Sachs Economic Research
- Ministry of Statistics and Programme Implementation (MOSPI)
Disclaimer: This article is for informational purposes only. EQMint does not endorse or provide investment advice. The accuracy of facts depends on publicly available sources; EQMint assumes no liability for any decisions made by readers based on this article.
