RBI likely to keep repo rate unchanged amid strong GDP growth

MPC meeting to maintain status quo

The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) is set to announce its policy decision on October 1, with most economists expecting the repo rate to remain unchanged at 5.5 per cent for the second consecutive time. The six-member rate-setting panel is also likely to retain its ‘neutral’ monetary policy stance amid robust GDP growth and expectations of benign inflation.

Economic growth supports pause in rate changes

India’s GDP growth has picked up sharply, reaching a five-quarter high of 7.8 per cent in the April-June 2025 quarter, compared to 6.5 per cent a year ago. Experts cite factors such as GST rationalisation, which has reduced rates to a two-slab structure of 5 per cent and 18 per cent, boosting consumption. The government’s capital expenditure and rural demand have also strengthened growth prospects, while urban consumption and private investment remain moderate.

“The Monetary Policy Committee is anticipated to maintain the status quo on the repo rate in its October review. Positive GST reforms, stronger-than-expected GDP growth, and a moderate inflation trajectory support this view,” said Aditi Nayar, chief economist at ICRA Ltd.

Inflation trajectory and potential rate cuts

While most economists expect a pause, some see room for a marginal rate cut. Soumya Kanti Ghosh, group chief economic advisor at State Bank of India, said a 25-bps cut could be warranted, but the RBI will need careful communication to maintain credibility. Nomura economists anticipate two further cuts in October and December, arguing that market expectations currently reflect only a minimal 10-bps reduction.

Goldman Sachs noted that headline inflation remains benign, supported by lower food inflation and GST pass-through. August CPI inflation rose slightly to 2.7 per cent from 1.61 per cent in July, but GST rationalisation could lower FY26 inflation to around 2.6 per cent.

Neutral policy stance to guide future decisions

The MPC adopted a neutral stance in June 2025, moving away from an accommodative approach. A neutral stance allows flexibility for future rate adjustments depending on economic data, including inflation, growth, and global developments.

Lending rates and market impact

If the repo rate remains at 5.5 per cent, external benchmark lending rates (EBLR) tied to the repo will not change. However, banks may adjust loans linked to their marginal cost of fund-based lending rate (MCLR). A pause in the repo rate is expected to support credit growth while maintaining inflation within manageable limits.

Global context and external factors

The MPC meeting coincides with ongoing US-India trade discussions and recent global monetary policy shifts, including the US Federal Reserve’s 25-bps rate cut in 2025. Tariff disputes, such as the US imposing a 50 per cent duty on Indian goods, could influence RBI’s outlook on growth and external demand.

Conclusion

Given the strong economic growth, manageable inflation, and external uncertainties, the RBI is widely expected to maintain the repo rate at 5.5 per cent and retain its neutral policy stance. However, experts continue to monitor GST effects, inflation trends, and global developments to assess the potential for future adjustments.