Besides some high-frequency data indicating deceleration in growth momentum, the external uncertainties would also pose downside risks to the outlook, while speedy conclusion of ongoing trade and investment negotiations present upside potential, the minutes said.
“Although domestic economic activity remains resilient in Q3, weakness in some leading high-frequency indicators is suggestive of a deceleration in the growth momentum in H2 vis-à-vis H1,” RBI Governor Sanjay Malhotra said.
He argued that a rate cut would stimulate demand and be growth-supportive. However, he voted for retaining the neutral stance which offers flexibility and a platform to act according to the evolving macroeconomic conditions and outlook.
“The most crucial recent development from the perspective of monetary policy has been the faster than anticipated moderation in CPI headline inflation,” said deputy governor Poonam Gupta.
Under the current flexible inflation targeting framework, RBI follows a mandate of keeping inflation at 4% with a band of 2% on either side of it.
“When the prevailing inflation and its forecast is as low as it is currently – it alone ought to get a larger weight in the monetary policy deliberations,” she said.
The repo rate cut would not lead to any overheating, the top economists assured.
“The economy at this point is not showing any signs of overheating. Instead, one could interpret the data as indicating that there is slack in the economy,” Gupta said.
“With this kind of inflation trajectory, the question is not whether, but how much, of a repo rate cut is possible without heating the economy,” external member Singh seconded.
India recorded a high 8.2% second quarter growth, exceeding all expectations while the headline inflation measured by the Consumer Price Index fell to a record low of 0.3% in October.
The celebrations of this ‘goldilocks moment’, however, were tempered by trends for October 2025 published only a few days later, suggesting that the economic activity had peaked in Q2, external member Nagesh Kumar pointed out.
The industrial activity, as measured by Index of Industrial Production, lost momentum in October 2025 to 14 months low, with mining and quarrying contracting and manufacturing reporting only 1.8% growth. The high-frequency indicators, such as PMI for manufacturing, dropped from 59.2 to 56.6. The merchandise exports declined by around 12% in October 2025.
The fact that the transmission of the previous 100 basis point rate cut was nearly complete also warranted a fresh booster dose. External member Saugata Bhattacharya raised concerns over the contraction in the October merchandise export and trade balance data.
Singh said that a delay in the rate cut would hurt real GDP growth by keeping real interest rates unnecessarily above growth-supportive levels.
The fresh rate cut however added some pressure on the rupee, which fell to its lowest ever level of 91.08 a dollar.
“However, the economy’s fundamentals – BOP, Forex, fiscal deficit, debt-to-GDP ratio, corporate and bank balance sheets, inflation, and growth dynamics – are all robust. Therefore, I expect exchange pressures and FPI flows to be self-limiting,” Singh said.