RBI raises growth forecast, keeping with trend, delivers rare December rate cut

RBI follows December script when it comes to growth revision

The Reserve Bank of India returned to a familiar pattern at its December policy meeting, upgrading its full-year growth outlook even as it cut rates by 25 basis points. The central bank raised its FY26 GDP forecast to 7.3 percent from 6.8 percent projected in October, extending the trend in which December has almost always seen a change in growth expectations. The only exception was 2021, when pandemic distortions made forecasting unusually uncertain.

The December revisions typically reflect fresh data from the first half of the fiscal year and shifts in domestic demand, government expenditure and global conditions. This year’s upgrade follows resilient consumption, softer-than-expected inflation and early signs of an investment revival.

“Rural demand continues to be robust while urban demand is recovering steadily. Investment activity remains healthy, with private investment gaining steam on the back of expansion in non-food bank credit and high capacity utilisation,” the Monetary Policy Committee said in its December 5 statement.

Inflation forecasts shift less; but 2025 proves different

Historically, the RBI has moved its inflation forecast far less frequently in December. Only two of the past five December policy meetings have brought CPI revisions. This year was one of them: the inflation outlook was cut to 2 percent from 2.6 percent in October after consumer inflation slowed to 0.3 percent in October, a new low in the current series.

FY26 also marks the first year in which the inflation projection has been adjusted in every meeting since April. By contrast, there was just one revision between April and December 2024 and only two throughout 2023.

A rare December policy move

Rate action in December has historically been uncommon. The last major move came in December 2022, when the MPC delivered a 35-bps hike. December 2025 has now broken that pattern with a 25-bps cut, signalling growing comfort with the disinflation trend and confidence in financial stability conditions. For most years, December has been a month of pause rather than pivot.

Outlook brightens for FY27

The RBI remains optimistic about the medium-term outlook as well. It projects 6.8 percent growth in the first half of FY27. Inflation, though expected to rise from current unusually low levels, is forecast to remain anchored at the central bank’s 4 percent target through H1FY27.