RBI Faces Tough Call on Rate Cut Amid Rupee Slide
The upcoming monetary policy meeting is proving to be a major test for RBI Governor Sanjay Malhotra, as the central bank weighs a possible 25 bps rate cut despite severe currency pressures. Inflation remains at a multi-decadal low and growth is strong — conditions that usually support easing — but record rupee depreciation has complicated the decision. The widening gap between the repo rate and bond yields has also intensified liquidity concerns.
The rupee’s fall — now India’s worst since 2022 and among the biggest globally — stems from trade deficits, weak capital flows and the delay in a US trade deal. Economists warn that further rate cuts may deepen currency losses, while forex experts believe the RBI is limited in intervention due to its large forward book and preference to reduce heavy dollar sales. Analysts say the authorities appear comfortable keeping the rupee undervalued to support export competitiveness.
With the market expecting limited easing and bond yields to remain stable, the RBI must strike a balance between growth support and currency stability. Experts suggest that only a trade breakthrough with the US can offer short-term relief, though seasonal factors may improve flows in Q4. The central bank may prefer a soft approach — tolerating gradual rupee weakness while focusing on curbing volatility rather than defending any specific level.
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