More Pressure on the Rupee

Till an India-US trade deal takes shape, the stress on the currency (against the dollar) will remain. The RBI has now lowered interest rates, tracking lower inflation

- By SALIL PANCHAL

HAS THE LATEST GDP DATA FOR India—at a higher-than-expected 8.2 percent for Q2FY26, led by manufacturing growth announced on November 28—stalled the Reserve Bank of India’s (RBI) potential move to lower interest rates (to spur growth), for the rest of FY26?

The RBI further lowered interest rates by 25 basis points on December 5, keeping in view the extremely low retail inflation.

Governor Sanjay Malhotra had given a fair hint of what they we were thinking. In the minutes of the last October policy meeting, Malhotra had said: “The benign inflation outlook opens up policy space for monetary action.” But he also added that the cumulative impact of fiscal and monetary measures was yet to be realised fully and tariff-related uncertainties were still evolving. This led the RBI to keep interest rates on hold at that time.

Economists had, in recent weeks, indicated that the RBI would cut rates in December—which it did—and then pause for the rest of FY26. Only a deepening fear of slowing growth will push the RBI for a further rate cut. The RBI has lowered rates by 125 basis points in 2025.

“This year, the story has been about growth overshooting and inflation undershooting,” says Sakshi Gupta, principal economist at HDFC Bank. She had predicted the latest 25 bps rate cut, given the lingering risks on growth (in H2) and with inflation expected to remain well below 4 percent until Q3FY27.