The 25-bps rate cut by the RBI did come as a surprise. After all, with the rupee hovering around ₹90/$, very few economists really expected the RBI to stick its neck out and cut rates. However, the RBI chose to dwell on the low inflation story. The CPI inflation has fallen to 0.25% in October. In fact, the average inflation in the last 6 months has been 2.0% and in the last 3 months it has been 1.5%. So, the RBI decided to give a helping hand to the India growth story. The hope is that inflation stays at very low levels, once the gold impact also starts to slow on core inflation; even if food inflation saturates. 

The decision to cut rates by 25 bps at a time when the rupee has been so volatile, surely calls for courage. However, that is not all. The RBI MPC has actually decided to infuse mountains of liquidity through the rate cut, CRR cut (already effective) and the additional ₹1 trillion of OMO infusion. It was also brave because the RBI has confidently upped its full year GDP growth estimate by 50 bps to 7.3% for FY26. In addition, there has been a 60-bps cut in inflation estimates for FY26 to 2.0%. The RBI has justified the rate cut by pinning its hopes on a sustained fall in inflation; supported by an improvement in real GDP growth. That is surely a brave and optimistic move. 

One contention that is emerging is that the RBI has actually deliberated and thought through this move, considering that the decision to cut rates by 25-bps was unanimous among the 6 members of the MPC. Bravura, here, refers to a well-thought through decision with very calculated risks. And, the calculated risk is that the weakness in the rupee could change if FPI flows start to come in. The previous experience has been that when the RBI turns dovish, there has been a surge in FPI flows into India. If that is also backed by a story of growth improving, then the circle should be complete. RBI is betting that growth will not just pick up, but even FPI flows will build up. 

While the move does look brave and optimistic in these circumstances, the RBI may be bang on target this time around. What the RBI has not acknowledged in its statement is that there is a problem on the nominal rate of growth, which was just 8.7% in Q2FY26. India needs double-digit nominal growth; and needs it badly. Unless that happens, the India growth story is never going to be worthwhile for global investors. Low inflation means that the real GDP will continue to be attractive in the next two quarters, so that gives the RBI enough time to boost nominal GDP growth. If that happens, the rupee may actually harden and we could once again see a sweet economic spot!