Moneycontrol Pro Panorama | MPC’s December dilemma: Cut now or watch opportunity slip?

Real rates are far higher than they appear on paper.

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India has seen some encouraging macro data of late. Economic growth is picking up while inflation -- meaning price trends -- is easing. That combination gives any central banker sound sleep.

In other words, the Reserve Bank of India’s monetary policy committee will enter the December meeting with a paradox most central banks would dream of — the economy is accelerating while inflation is collapsing.

Meanwhile, the International Monetary Fund revised India’s FY26 growth estimate to 6.6 percent, up from 6.4 percent projected three months ago, after a scorching 7.8 percent expansion in the first quarter and another near 7 percent print expected in the second. Domestic demand is resilient, services exports are holding, and even tariff shocks from the US have failed to dent momentum. The RBI itself has revised its own growth projection to 6.8 percent.

Inflation cooling…

On the other side of the ledger, inflation has not just eased — It has fallen off a cliff. Headline retail inflation printed at 1.54 percent in September, the lowest in nearly eight years, driven by outright food price deflation of -2.3 percent. October readings are tracking even lower. The IMF has slashed its FY26 inflation forecast for India to 2.8 percent from 4.2 percent in April. For FY27, it sees 4 percent — still well within the RBI’s comfort band.

Even core inflation — the metric the central bank hides behind when food is volatile — is being propped up largely by soaring gold prices rather than any meaningful demand surge. Strip the gold out and underlying price pressures are closer to 4 percent, comfortably aligned with the target.

Which raises the obvious question — What exactly is the MPC waiting for? For months now, it has repeated the line that it seeks “sustained alignment” of inflation to target before cutting rates. That alignment is staring it in the face. Food prices are in deflation, services inflation is soft, fuel is benign, and imported shocks are muted. The risk now is not inflation overheating but disinflation dragging into stagnation.

Today’s Chart of the Day discusses the striking balance between food inflation and CPI prices.

But it isn’t all rosy…

Growth at 6.6 percent looks impressive in headlines, but nominal GDP -- the real driver of corporate profits and tax revenues -- is slowing. Bank credit growth has begun to cool. Corporate borrowing is losing traction. Real rates are far higher than they appear on paper. The longer the policy remains restrictive, the higher the cost of lost opportunity.

There is a tendency in Indian central banking to wait for perfect clarity before acting. But macroeconomic windows rarely stay open for long.

So, can we have a Christmas party then?

A pre-emptive rate cut in December -- even a cautious 25 basis points -- would not be a sign of panic or political pressure. It would simply be an acknowledgment that monetary policy must respond to facts, not fears. The global context supports such a move as well. Advanced economies are softening, oil remains range-bound, capital flows are stable, and the rupee is under no immediate threat.

If the RBI chooses to delay, it may well find itself forced into steeper cuts later — under less favourable conditions. December is not just another policy review. It is a test of whether the central bank is willing to lead or remain a spectator to its own macro success. Growth is running ahead, inflation is playing dead. The MPC must decide whether it wants to seize the moment or justify inaction after the moment has passed.

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Dinesh UnnikrishnanMoneycontrol Pro