Strong GDP print tilts RBI toward policy pause, says ICRA's Aditi Nayar

India’s strong first-half gross domestic product (GDP) performance has shifted the balance away from a rate cut at the December 5, 2025 policy meeting of Reserve Bank of India (RBI), according to Aditi Nayar, Chief Economist at ICRA. “We thought the balance was slightly tilted towards a final cut… but after looking at an 8% average growth… we are in for a pause on Friday,” she said.


The narrow gap between real and nominal GDP remains a key discussion point. Real GDP grew 8.2% in quarter two, while nominal GDP was at 8.7%, driven by very low inflation. Nayar said the narrow deflator is expected to persist. “With inflation levels being so low, both for the consumer price index (CPI) and for the wholesale price index (WPI), there was no option but for the deflator to be as narrow as this,” she noted. She expects the deflator to be “even lower in quarter three” before normalising in quarter four and early 2026-27 (FY27).

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As base effects fade, she anticipates moderation in real growth in the second half. Her full-year forecast now stands at 7.4% for 2025-26 (FY26). She cautioned that exports to the US could weaken due to tariff concerns and that the government may need to reallocate capex to avoid a slowdown. “These are the things that we'll be watching out for,” she added.

Bank of Baroda Chief Economist Madan Sabnavis said the case for further rate cuts has already passed. He argued that lowering rates when GDP is growing near 7.5% annually does not align with policy needs. “What exactly are we trying to achieve?” he asked. On the inflation path, he expects CPI to move toward 4–4.5% next year, keeping the real repo rate in a comfortable range. “End of the cycle — we remain at 5.5%,” he said.

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Sabnavis also pushed back on concerns over the lower deflator, saying it reflects “very unusual inflation numbers” and does not distort growth performance. While consumers still feel elevated prices in daily essentials, he said the statistical outcomes are “perfectly alright” and expected during periods of subdued wholesale inflation.

Both economists agree that the RBI must balance a strong growth backdrop with uncertainties around exports, capex and the global environment. But as markets await the policy outcome, the message is clearer: strong GDP has reduced the urgency for further easing, at least for now.

For the full interview, watch the accompanying video

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