India’s robust 8.2% GDP growth in the July–September quarter is prompting economists to question the need for further interest rate cuts, even as retail inflation hits a record low of 0.25% in October.

Analysts noted that the world’s fifth-largest economy is now expanding close to its estimated potential growth of 6.5%-7%, the pace at which an economy can grow without triggering inflation. This strengthens the case for the Reserve Bank of India (RBI) to pause its rate-cut cycle.

“Stellar growth numbers reaffirm our view of a pause,” said Gaura Sen Gupta, chief economist at IDFC First Bank. “Space for easing is limited and should be utilised only when downside risks to growth materialise.”

Despite expectations earlier for a 25 basis points repo rate cut to 5.25% on December 5, RBI has held rates steady since August after lowering them by 100 bps earlier in 2025. RBI Governor Sanjay Malhotra has indicated scope for further cuts, but timing depends on the monetary policy committee’s assessment.

Inflation vs. Real Rate Debate

Economists argue that ultra-low inflation provides room for easing, but with growth running hot, the RBI may limit cuts. A. Prasanna, chief economist at ICICI Securities, noted that a single 25-bps cut could align the real policy rate with forward-looking inflation expectations.

Current retail inflation implies a neutral real rate (repo rate minus inflation) is high, but based on projected inflation of 4.5% for Q1 FY27, the neutral rate is expected between 1.4%-1.9%.

Downside Risks

Some analysts highlight potential slower growth in H2 of FY26, citing factors such as the 50% U.S. import tariff on Indian goods, which could affect exports and employment in textiles and jewellery sectors.

While investors remain hopeful for a rate cut, the strong GDP print has tempered expectations. Economists now anticipate that the RBI may lower full-year inflation forecasts from 2.6% and raise full-year GDP estimates above 6.8%.