Barclays flips December RBI rate call from cut to 'dovish hold'

Core Viewpoint - The Reserve Bank of India (RBI) is expected to hold interest rates steady in light of unexpectedly high GDP growth of 8.2% and low CPI inflation of 0.3% for October, leading to a reassessment of economic forecasts [1][3][4]. Economic Indicators - The October CPI inflation rate was reported at 0.3%, which is significantly below expectations, indicating a benign inflation environment [1][3]. - The GDP growth rate for the same period was 8.2%, surpassing the RBI's own estimate of 7% and the market expectation of 7.4%, prompting a revision of growth forecasts [3][10]. Monetary Policy Implications - The RBI is likely to revise its GDP growth forecast for the financial year 2026 to an average of 7.2%, which is 40 basis points higher than previous estimates [3][4]. - The inflation forecast for the financial year 2026 is expected to be revised down to around 2%, compared to the current forecast of 2.6% [4][12]. Market Reactions - The RBI is anticipated to adopt a neutral stance with a dovish pause, potentially implementing non-rate measures to ensure bond market stability and liquidity [5][6]. - There is a recognition of the divergence in economic data interpretations among economists, but the RBI will base its decisions on the available data, regardless of its credibility concerns [11][12].