The bond market decides.

The six-member Monetary Policy Committee of the Reserve Bank of India (RBI) "voted unanimously to lower the repo rate to 5.25%,..and maintained a neutral stance, suggesting room for further rate cuts. The central bank has cut rates by a total of 125 basis points (bps) since February 2025, the most aggressive since 2019." Reuters. "Another 25 bps, akin to the June cut," "But the effect on market interest rates is likely to be amplified by the nearly Rs 1.5 trillion of liquidity infusion through open market purchases of government securities (Gsecs) and the dollar/rupee buy swap arrangement in December. The measures are expected to soften short term interest rates as well as the 10-year G-sec yields." TOI. Considering the GDP growth of 8.2% in the second (Jul-Sep) quarter and by 8.0% in the first half of the current financial year (pib.gov.in) what was the need, not just of a rate cut, "But also, immediate and extraordinary liquidity support," when the estimated GDP growth for FY26 has been revised up from 6.8% to 7.3% and there is a surplus of Rs 1.5 trillion in systemic liquidity? asked Mythili Bhusnurmath. The unanimous vote indicates that "not one of the external members seems to have any qualms that a further rate cut and liquidity bonanza could be an overdose, endangering RBI's primary mandate of price stability." Maybe they were so instructed, because the World Bank "through a footnote, starkly describes the control that the finance ministry wields over RBI." "The government can remove the governor, deputy governor and directors without justification; give directions to the RBI; supersede its board," wrote Rajrishi Singhal. No Indian will want to lose a cushy government job. Maybe the government wants to push the consumer price index (CPI) inflation, which came in at 0.25% year-on-year in October (pib,gov,in) higher because a high inflation rate will increase GST collections and reduce the value of government debt (Economics Help). Also such a low inflation rate meant the nominal GDP came in at only 8.7% in the second quarter, as the GDP deflator was only 0.5%. "The government had estimated a nominal GDP growth rate of 10.1% in 2025-26 (i.e. real growth plus inflation)." prsindia.org. That is important because tax collections are linked to the nominal GDP. "Once the government estimates nominal GDP growth, it then works out how much tax it expects to collect in the next financial year," and  "Once it knows how much revenue it will collect, it projects the expenditure determining allocations for different ministries, departments and schemes." ET. The budget has estimated the fiscal deficit, that is total government borrowing, for the current year at Rs 1.5689 trillion or 4.4% of GDP. indiabudget.gov.in. With rupee flirting with a level of 90 to the US dollar (investing.com), with a possibility of going even lower (in.investing.com), the price of imports is likely to increase. If the RBI loses control of inflation it could be forced to jack up interest rates. The bond market seems to think so because yield on the benchmark 10-year government bonds is back up to 6.568% this morning after dropping a smidgen to 6.500% on 5 December. in.investing.com. This government has till 2029 after partially winning in 2024  (wikipedia) but markets have no horizon. The government can control the RBI but not the bond market. Who will prevail?