RBI Expected To Maintain 5.5% Repo Rate, Indicates Latest Bank of Baroda Report

As per the latest report from Bank of Baroda, the Reserve Bank of India (RBI) is likely to keep the repo rate unchanged at 5.5 per cent in its December 2025 Monetary Policy Committee (MPC) meeting. It is expected that the Central Bank will maintain this neutral percentage this year as well. This view is mainly driven by strong economic growth and easing inflation, which together give the RBI enough room to pause and observe the global environment shifts.

Why the RBI May Hit Pause Again

The Indian economy has been performing better than expected; the growth in the July-September quarter (Q2 FY26) stood at 8.2 per cent. This was above RBI's own predictions of 7 per cent. This early data suggests that the momentum continued into Q3 as well. GST cuts, festive spending, and rising demand in both urban and rural areas have supported this prediction.

Growth and Inflation Forecast Changes

With GDP numbers outperforming expectations, the RBI may revise its FY26 growth forecast upward from the present 6.8 per cent. Bank of Baroda's reports expect India's growth to be around 7.4-7.6 per cent for the full year.

As for the inflation side, projections may be lowered since actual inflation is tracking far below estimates. Bank of Baroda expects FY26 inflation to stay within 2.4 to 2.5 per cent.

Banking and Liquidity Trends to Watch

Liquidity in banking systems has remained in surplus for eight straight months. In November 2025, the surplus rose to Rs 1.8 lakh crore, part of the reason was due to two recent Cash Reserve Ratio (CRR) cuts. However, RBI's interventions to stabilise the rupee could tighten liquidity, so the central bank may initiate Open Market Operations (OMOs).

Bank credit growth continued at 11.4 per cent and outpaced the deposit growth of 10.2 per cent, which indicates rising borrowing demand. Lending and deposit rates have also eased this year, which reflects the pass-through of the earlier rate cuts.

What Lies Ahead

The indicators for what comes ahead point to strong economic activity. Rural demand has benefited from good yields, while urban consumption is improving with rising imports and higher automobile sales.

Inflation risks also appear to be under control due to the fall in prices of daily essentials and rationing. Yet, global uncertainty remains a factor to still be concerned about, with US tariff changes and possible trade negotiations. This backdrop supports Bank of Baroda's report on how RBI may prefer to wait until the February 2026 policy before taking any other strong step ahead.