The committee debated India's potential growth rate, with the external member suggesting it could be around 7.5% due to improvements in productivity, infrastructure, and digitalization—implying that recent high growth figures were sustainable

The Reserve Bank of India's Monetary Policy Committee (MPC) unanimously decided to cut the repo rate by 25 basis points in its December 2025 meeting, reflecting a shared view that exceptionally low inflation provided ample policy space without risking economic overheating. The minutes highlighted robust first-half growth averaging 8%, driven by strong Q2 performance, but also noted emerging signs of moderation in the second half. External members emphasized that the sharp drop in inflation—to levels as low as 0.3% in October—allowed for this calibrated easing to sustain growth momentum.

One of the MPC members, pointed to encouraging Q2 growth of 8.2%, pushing the first-half average to 8%. However, he flagged subsequent data showing a peak in economic activity, with industrial slowdowns in mining and modest manufacturing growth. With inflation providing clear headroom, he argued that the rate cut was essential to support growth, complementing government measures like export promotions and credit guarantees. He stressed the need to carry forward the positive momentum into the latter part of the fiscal year.

Another member, described the cut as a "risk management" measure focused primarily on inflation dynamics. He noted the significant undershoot in inflation readings, opening up space for action despite solid first-half growth. He highlighted low capacity utilization around 74-75% and anchored household inflation expectations as indicators of no immediate overheating risk. He viewed the move as preventive, avoiding the possibility of falling behind the curve as inflation was projected to rise modestly later.

Discussions also touched on external challenges, including rupee depreciation and high US-imposed tariffs affecting labor-intensive sectors. While these were acknowledged as risks, some members saw them as reinforcing the case for growth-supportive policy. One member however, maintained that external factors remained peripheral to core domestic considerations, with the rupee's movement largely tied to growth differentials rather than interest rates alone. On the policy stance, most members preferred retaining "neutral" to preserve flexibility for data-dependent decisions ahead. One external member advocated shifting to "accommodative," signaling a slightly more dovish outlook, though the committee opted for caution. Concerns about very low inflation potentially breaching the lower tolerance band were raised, with calls for aiming at healthier rates to avoid deflationary risks.

The committee debated India's potential growth rate, with the external member suggesting it could be around 7.5% due to improvements in productivity, infrastructure, and digitalization—implying that recent high growth figures were sustainable rather than exceptional. Validation of GDP numbers, including deflator issues and corporate profits, was discussed, confirming underlying strength despite anecdotal perceptions of slower on-ground activity.