India’s Strong Q2 Growth Clouds Case for Immediate Rate Cuts

India’s sharper-than-expected economic expansion of 8.2% in the July–September quarter has complicated expectations of an imminent rate cut, despite inflation easing to a record low. The robust growth figures prompted analysts to raise full-year projections above 7%, placing the economy close to its estimated potential growth of 6.5%–7%. With retail inflation slowing to 0.25% in October, analysts say the Reserve Bank of India (RBI) now faces mixed signals as it prepares for its December 5 policy review.

Economists argue that while ultra-low inflation offers room for easing, the strong GDP print reduces the urgency. Several analysts, including those at IDFC First Bank and ICICI Securities, note that the central bank may prefer to conserve its limited policy space until growth risks emerge later. The debate also hinges on India’s real policy rate, which has risen sharply because inflation has fallen faster than anticipated. On a forward-looking basis, however, the real rate is expected to normalise as inflation moves toward the RBI’s projected 4.5% for early FY27.

Despite earlier expectations of a 25-basis-point cut, the latest data has led some institutions like Barclays to withdraw their rate-cut forecast for this week. Concerns over the impact of the U.S. 50% import tariff on Indian exports and a potential growth slowdown in the second half of the fiscal year still keep investor hopes alive for at least one more reduction. Analysts expect the RBI to revise its full-year inflation forecast lower from 2.6% while nudging its growth estimate higher from 6.8%.

Pic Courtesy: google/ images are subject to copyright