But of course, with economists, it always 'depends'. We were well aware that the swing factor could be the July-September GDP growth, and oh boy, did it swing! July-September GDP growth rate rocketed to 8.2% year-on-year, up from 7.8% in April-June, higher than our estimate (7.4% versus the RBI's estimate of 7.0%). On the expenditure side, private demand boosted headline GDP growth even as government consumption declined. 'Discrepancy' added a sizable 4.1 percentage points to GDP growth. On the production side, strong manufacturing growth surpassed what tepid IIP indicated was the key driver. We have now revised our FY25-26 GDP growth forecast up by 40 basis points (bps) to 7.2% year-on-year. Does an economy growing at over 7% this year, with a robust growth outlook next year, need another cut?

Maybe not, in our view. We no longer expect the Reserve Bank of India's Monetary Policy Committee (MPC) to cut the policy rate at the upcoming 5 December meeting. We acknowledge that growth has peaked and expect H2FY25-26 growth to slow versus H1 (barring base revision-led surprises, if any). For a forward-looking central banking, as important as it is to look through backward encouraging data— both low inflation and solid growth—the solid GDP print can't be ignored. With the 'need' for cut likely trumping the 'space' for cut, we expect the RBI MPC to deliver a dovish pause. We do not rule out any dissent to this view, both on the rate itself and the overall stance within the MPC, but we expect the rate pause and the 'neutral' stance to prevail. We would also look out for an announcement on open market operations (OMO) purchases, offering some liquidity, comfort and cooling down yields. Alongside the rates decision, we expect the RBI MPC to revise up its FY25-26 real GDP growth estimate from 6.8%, and revise down its inflation forecast from 2.6% (as of October).

So, is the last rate cut behind us and is 5.5% the terminal rate for this cycle? Since the trade talks between India and the US resumed in mid-September, we believed that the conclusion of the first tranche of the bilateral trade deal between India and the US was still some time away. As such, we did not expect anything material to happen on that front until the 5 December policy meeting (which it hasn't), reinforcing our erstwhile rate cut call. All eyes are now on Russian President Vladimir Putin's visit to India (on 5 December), which could potentially shape the contours of the India-US trade and tariff landscape. Should the 50% (25% 'reciprocal + 25% 'secondary') tariffs on India last beyond 2025, we do not rule out further easing in 2026. But in our base case, we expect the MPC to hold for now, assuming the first tranche of a trade deal comes through before the year-end, taking tariffs down to 20-25%.

In these uncertain times, the USD-INR rose to the occasion, too. It is often argued that a weak(-ening) currency is seldom the right time to ease rates: Eco 101—yes, India—not necessarily. In India, given the limited exchange rate pass-through to inflation and low foreign ownership of Indian government bonds (IGBs), using rates to support currency doesn't fly. In fact, given the dominant role that FPI equity inflows play in supporting India's capital account surplus, a rate cut is often seen as 'growth supportive', attracting FPI equity inflows. Thus, we don't think that the RBI MPC would ascribe to a weakening USD-INR, while justifying a likely pause in the upcoming meeting.

The December dilemma before the RBI MPC is real. As convinced as we were of the 'space' available to deliver another cut, we think the 'need' to do so has diminished materially with the red-hot GDP growth print. This, indeed, was the perfect window for the RBI MPC to sequence a cut post the GST 2.0 boost to consumption. Alas! Not anymore.

Aastha Gudwani is India Chief economist at Barclays