In its latest Ecowrap, the research unit said the decision reflects RBI’s assessment of emerging uncertainties in a volatile global environment, even as India’s macroeconomic fundamentals remain robust.
The MPC also retained its neutral stance. Following the decision, the Standing Deposit Facility (SDF) rate stands at 5.00%, the Marginal Standing Facility (MSF) and Bank Rate at 5.50%, while the Cash Reserve Ratio (CRR) remains unchanged at 3%.
Inflation forecasts mark deep downward revision
SBI Research noted that India’s inflation trajectory has softened faster than expected, aided by lower food prices, higher kharif output, healthy rabi sowing, favourable reservoir levels and supportive soil moisture.
RBI cut its FY26 CPI inflation projection sharply—from 2.6% earlier to 2.0%—while Q3 FY26 inflation is pegged at just 0.6%. The central bank now expects inflation to remain below 4% through the first half of FY27. SBI Research forecasts FY26 inflation at 1.8% and FY27 at 3.4%.
The report said such “unprecedented downward revisions” leave room for further policy flexibility, though the RBI is expected to keep rates lower for an extended period.
High growth, yet a rate cut — a rare combination
With GDP growth currently above 8.2% and inflation near 0.25%, the Ecowrap called the rate cut “exceptional,” citing limited global precedents of easing during high-growth phases.
Historical examples from the UK, Indonesia and China show such moves happening only when inflation levels were significantly higher than India’s current reading.
RBI now projects FY26 real GDP growth at 7.3%, up from its previous 6.8% estimate. Growth for Q1 and Q2 of FY27 is projected at 6.7% and 6.8%, respectively. SBI Research, however, expects both Q3 and Q4 FY26 growth to exceed 7%, pushing full-year growth to 7.6%, while cautioning that global trade and tariff uncertainties could weigh on external demand.
Liquidity support through OMOs, dollar swap
Despite surplus system liquidity through most of FY26, RBI has moved to stabilise conditions amid upcoming outflows from advance tax, GST payments and seasonal credit demand.
The central bank announced open market purchase operations (OMOs) worth ₹1 lakh crore in two tranches on December 11 and December 18. In addition, it will conduct a USD/INR buy-sell swap of $5 billion on December 16, expected to inject about ₹45,000 crore.
The Ecowrap said buy-sell swaps typically reduce forward premiums, ease hedging costs for corporates, lower Mumbai Interbank Forward Offer Rate (MIFOR), and help the RBI manage short-term currency pressures while replenishing FX reserves. The rupee, which recently crossed 90 against the dollar, remains vulnerable to volatility amid elevated offshore NDF segment activity.
Banking system “sound and stable”
The report highlighted steady improvement in banking sector parameters such as capital adequacy, profitability and asset quality.
Credit growth stood at 11.3% year-on-year as of late October, while deposit growth was at 9.7%. Transmission of the cumulative 100 bps rate cut since February has been broad-based, with lending rates on fresh loans down 69 bps and deposit rates falling by over 100 bps.
However, SBI noted that banks raised lending rates marginally in October even as they lowered fresh deposit rates, suggesting that the latest policy shift will require recalibration of asset-liability positions.
Markets urged to remain steady
SBI Research said the RBI has done “its best to ensure monetary policy continues to support growth,” adding that markets should remain measured as policy support expands. With inflation projected to stay benign into FY27 and growth remaining resilient, the report said the central bank has kept options open for future rate actions as global uncertainties continue to evolve.
