RBI MPC Meeting Highlights: Repo rate unchanged at 5.5%, announces RBI governor Sanjay Malhotra; GDP growth outlook revised up to 6.8%, flags risks due to US tariffs

“The Monetary Policy Committee (MPC) maintained status quo on rates and stance in line with the market expectation. Real GDP growth for this year has been revised upward to 6.8% from the earlier estimate of 6.5%. The inflation forecast for fiscal 2026 has been revised down to 2.6% from the previous 3.1%. This could augur well for the bonds market. In our assessment, given the favourable growth inflation dynamics, the rate environment is expected to remain benign with possibility of further monetary support. There could be some volatility due to prevailing global uncertainties and tariff related developments. However, real yields are very attractive at this juncture. Hence, investors are advised to remain invested in light of the prevailing benign environment,” said Parijat Agrawal, Head of Fixed Income at Union Asset Management Company Private Limited.

RBI governor Sanjay Malhotra on Wednesday said that the impact of 50% US tariffs will not be fully offset by the recent GST rate cuts, which is why the MPC has revised downwards the GDP growth forecasts for the second half of this financial year. The overall GDP growth number for FY26 has been revised upwards to 6.8% because of robust growth in the first half of this financial year, he said.

"Inflation is now at 2.6% from our earlier forecast. So it has dropped down by 1%. The growth at the same time has also been revised slightly downwards, primarily on account of trade related, the higher tariff that has come into play, which is still negotiations going on, etc, still unfolding, but we have taken have taken that we have made that change," said RBI governor Sanjay Malhotra.

"Whatever are the external head winds, we try to counter them. Ours is a primarily, a domestic demand driven economy, so the impact is limited. It's not as high as some of the other countries, as I had earlier mentioned, and the government, as well as the RBI, both fiscal, monetary and other policies will will make all efforts to ensure that whatever are the headwinds, they can be countered. At the same time you are aware that negotiations are still going on, the government is looking at other means of opening up other markets.

There have been, there has already been a trade deal with the UK. Negotiations are on with so many other countries, including Oman, EU, etc, that will also open up markets for our exporters. And on the whole, the growth of Indian growth has been quite resilient and we are very hopeful that we will continue to maintain a very high growth trajectory, while maintaining price stability," said RBI governor Sanjay Malhotra.

“As expected, the Monetary Policy Committee maintained a pause on both the policy rate and its stance. Since the last meeting, however, the backdrop has shifted considerably: rising protectionism in the US, tentative signs of de-escalation in the Israel–Hamas conflict, and most importantly, a major overhaul of India’s Goods and Services Tax regime.

While many of these developments could have far-reaching implications, in the near term India’s domestic reforms are likely to more than offset the negative impulses from abroad. The sharp softening of the US interest rate outlook also has important consequences for India’s policy trajectory.

Against this context, today’s pause was expected. But looking ahead, the door is open for a rate cut of 25–50 basis points. Strong growth, benign inflation, and a likely easing bias in the future all combine to create a supportive backdrop for Indian financial markets,” said Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group.

“India’s resilient GDP growth, controlled inflation and the continuing impact of earlier rate cuts leading to low lending rates highlight the Reserve Bank of India’s prudent approach to monetary policy. At the same time, in the face of global uncertainties, the Indian Government’s steps such as reductions in personal income tax and GST would help boost consumer sentiment and support economic momentum. In this context, the RBI’s current position reflects a measured response to continue to wait for its past actions to bear fruit while staying nimble footed.,” said Rahul Goswami, CIO & MD, India Fixed Income, Franklin Templeton.

“The MPC delivered exactly a “dovish pause” which the market expected. But despite the policy being in tune with market expectations, the market has given a thumps up to the policy since the Central bank delivered some unexpected pro-market initiatives like allowing banks to fund acquisitions and also further liberalising loan against shares.

Raising the GDP FY26 forecast to 6.8% from 6.5% earlier and lowering the FY26 CPI inflation forecast to 2.6% from 3.1% earlier reflect the Central bank’s optimism about the resilient economic outlook. The Governor’s comments indicate the possibility of one more rate cut; but it will depend on the incoming data and evolving outlook,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

RBI governor Sanjay Malhotra said: We have been making steady progress in the use of Indian Rupee for international trade. Three measures are proposed in this regard:

• First, permit AD banks to lend in Indian Rupees to non-residents from Bhutan, Nepal and Sri Lanka for cross border trade transactions.

• Second, establish transparent reference rates for currencies of India’s major trading partners to facilitate INR based transactions.

• Third, permit wider use of SRVA balances by making them eligible for investment in corporate bonds and commercial papers.

“There has been a significant moderation in inflation. Moreover, the prevailing global uncertainties and tariff related developments are likely to decelerate growth in H2:2025-26 and beyond. The current macroeconomic conditions and the outlook has opened up policy space for further supporting growth. However, the MPC noted that the impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out. The trade related uncertainties are also unfolding. The MPC, therefore, considered it prudent to wait for the impact of policy actions to play out and greater clarity to emerge before charting the next course of action. Accordingly, the MPC unanimously voted to keep the policy repo rate unchanged at 5.5 per cent. The MPC also decided to retain the stance at neutral. However, two members - Dr. Nagesh Kumar and Prof. Ram Singh, were of the view that the stance be changed from neutral to accommodative,” said the MPC statement.

“The real estate sector plays a pivotal role in the economy, contributing significantly to employment and GDP. As the sector continues to benefit from improved buyer sentiment and strong housing demand, we were looking forward to a supportive stance from the RBI in the monetary policy during the ongoing festive season. A rate cut at this juncture would have been highly encouraging for homebuyers and developers alike, potentially boosting affordability and further investments in the sector. However, the decision to maintain status quo will keep the ongoing residential real estate sales momentum on course, offering homebuyers assurance of steady loan terms. We are hopeful that the real estate sector’s growth momentum will continue to accelerate further and drive long term momentum for home ownership and contributing positively to overall economic expansion. As we move ahead, we would definitely welcome further rate cuts in the near term to build confidence in the market,” said Ramani Sastri - Chairman & MD, Sterling Developers.

“The sobering of inflation has given greater leeway for monetary policy to support growth. However, the MPC decided to wait for the cumulative impact of the recent policy actions to play out before charting the next course of action.

As India strives towards achieving Viksit Bharat by the centenary year of its independence, it would need the coordinated support of fiscal, monetary, regulatory and other public policies to attain its goal.

The recent rationalization of GST rates by the government is a major step in this direction in terms of monetary policy actions, we will remain vigilant of the incoming data and stay focused on our objective of maintaining price stability while supporting growth," said RBI governor Sanjay Malhotra.

The various policy announcements today that we have mentioned will also support the achievement of the goal of Viksit Bharat and in pursuit of this objective, we will be proactive, objective and consistent in our communication, while backing it up with credible actions.

The export sector is a vital part of India's economy. To further strengthen the sector and enhance ease of doing business for them, we shall extend the time period for repatriation from foreign currency accounts of Indian exporters from one month to three months

Increase the period for forex outlay for merchanting trade transactions from four months to six months and C simplify the process of reconciliation of outstanding entries related to exports and imports in the respective reporting portals.

“The RBI’s decision to hold the repo rate steady at 5.5% in October after a cumulative 100 basis point cut earlier this year signals a thoughtful balance between growth and stability. For the real estate sector, this consistency is a positive enabler during the festive season, when home-buying activity traditionally peaks. Predictable EMIs give buyers the confidence to act on long-awaited decisions, especially with the recent GST rationalisation already improving affordability. Developers, too, benefit from clarity in financing, enabling timely project planning and execution. Despite global headwinds like the U.S. tariffs on Indian exports and rising visa costs, domestic housing demand continues to stay resilient across affordable and premium segments. A stable rate environment, combined with festive sentiment, GST relief, and India’s strong economic fundamentals, will ensure that real estate enters 2026 on a firm growth trajectory,” said Manju Yagnik, Senior Vice President of NAREDCO- Maharashtra.

“The trade related uncertainties are also unfolding. The MPC therefore considered it prudent to wait for the impact of policy actions to play out and for greater clarity to emerge before charting the next course of action,” said RBI governor Sanjay Malhotra.

“Buoyancy in services sector, coupled with steady employment, conditions are supportive of demand. This is expected to get a further boost from the rationalization of GST, rising capacity utilization, conducive financial conditions and improving domestic demand should continue to facilitate fixed investment. However, ongoing tariff and trade policy uncertainties will impact external demand. Prolonged geopolitical tensions and volatility in international financial markets caused by risk of sentiments of investors mean downside risks to the growth outlook,” said RBI governor Sanjay Malhotra.

“Economic activity has remained resilient, with growth of real GDP surprising on the upside at 7.8% and GVA at 7.6% for Q1 this year. As suggested by high frequency indicators available so far, domestic economic activity continues to sustain momentum, even in Q2,” said RBI governor Sanjay Malhotra.

“Global economy has been more resilient than anticipated, with robust growth in the US and China. The outlook, however, remains clouded amidst elevated policy uncertainty. Inflation has remained above respective targets in some advanced economies, posing fresh challenges for central banks as they navigate the shifting growth inflation dynamics, financial markets have been volatile. The US Dollars strengthened after the upward revision of US growth numbers for the second quarter,” said RBI governor Sanjay Malhotra.

“Overall, India's external sector continues to be resilient, and we remain confident of meeting our external obligations comfortably, not withstanding the robust domestic macroeconomic fundamentals. The rupee has witnessed some depreciation by accompanied by phases of volatility. We are keeping a close watch on the movements of the rupee and will take appropriate steps as warranted,” said RBI governor Sanjay Malhotra.

“Overall, the inflation outcome is likely to be softer than what was projected in August, primarily on account of the GST rate cuts and benign food prices. CPI inflation for this year is now projected at 2.6%; with Q2 and Q3 at 1.8%, Q4 at 4% and Q1 next year at 4.5%. The risks are evenly balanced,” said RBI governor Sanjay Malhotra.

"Real GDP growth for this year is now projected at 6.8%, this is a revision from our earlier forecast of 6.5%. Q2 is now projected at 7%, Q3 at 6.4%, Q4 at 6.2%," said RBI governor Sanjay Malhotra.

“The implementation of several growth inducing structural reforms, many of which were announced by the Honourable PM on 15th August, including the streamlining of GST, are expected to offset some of the adverse effects of the external headwinds,” said RBI governor Sanjay Malhotra.

“The MPC observed that the overall inflation outlook has turned even more benign in the last few months due to a sharp decline in food prices and the rationalization of GST rates, average headline inflation for this year has been consequently revised lower from 3.7% which was projected in June, 3.1% in August, to now 2.6%. So headline inflation for Q4 this year and Q1 next year have been revised downwards and are broadly aligned with the target, despite unfavorable base effects,” said RBI governor Sanjay Malhotra.

“Growth continues to be below our aspirations, even though the growth projection for the current financial year is now being revised upwards, the forward looking projections for Q3 and beyond are expected to be slightly lower than projected earlier. This is primarily due to trade related headwinds, despite being partially offset by the impetus provided by the recent GST reforms,” said RBI governor Sanjay Malhotra.

“After a detailed assessment of the evolving macroeconomic conditions and outlook, the MPC voted unanimously to keep the policy repo rate unchanged at 5.5%”, said RBI governor Sanjay Malhotra

“The rationalization of the GST is likely to have a sobering impact on inflation, while at the same time stimulating consumption and growth,” said RBI governor Sanjay Malhotra

“Since the August policy meeting, significant developments on the domestic front amidst a fast changing global economic landscape have altered the narrative on growth,” said RBI governor Sanjay Malhotra.

Ahead of the RBI policy, Indian equity benchmark indices, Nifty50 and BSE Sensex, were trading in green. At 9:45 AM, Nifty50 was trading at 24,685.15, up 74 points or 0.30%. BSE Sensex was at 80,492.92, up 225 points or 0.28%.

The headwinds emanating from prolonged geopolitical tensions, persisting global uncertainties, and volatility in global financial markets pose risks to the growth outlook. Taking all these factors into account, real GDP growth for 2025-26 is projected at 6.5 per cent, with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.3 per cent. Real GDP growth for Q1:2026-27 is projected at 6.6 per cent. The risks are evenly balanced.

Head of Financial Markets at SBM Bank (India) Ltd, Mandar Pitale, indicated that the MPC is likely to maintain "status quo" regarding policy rates during their upcoming meeting, whilst observing the complete effects of the CRR reduction and awaiting additional proactive fiscal initiatives from the government.

"In the near term, the baseline view thus remains that of prolonged pause with a small probability of residual rate cut in December MPC meeting depending upon the forward-looking growth inflation dynamics prevailing at that point," Pitale said.

Research findings published in the RBI's most recent Bulletin demonstrate significant transmission of the total 100 bps decrease in repo rate between February and August 2025 to both lending and deposit rates.

Dharmakirti Joshi, Chief Economist at Crisil Limited, stated: "We expect that a repo rate cut could come as soon as October due to lower-than-expected inflation. Core inflation, which indicates excess demand pressure, remains low by historical standards despite the significant impact of rising gold prices."

The impending GST rate adjustments are expected to help drive inflation down further, according to his assessment.

"Moreover, the recent decision by the US Federal Reserve to lower its funds rate by 25 basis points, along with an anticipated additional 50 basis points of cuts this year, provides the RBI's Monetary Policy Committee with some flexibility to make adjustments," Joshi said.

Madan Sabnavis, Bank of Baroda's Chief Economist, expressed: "While we do believe that there is limited scope for any change in the repo rate in this policy, there is a market view that given the current environment, a rate cut would be warranted."

He elaborated that inflation remains comfortably below the 4 per cent target, both in pre and post GST 2.0 periods, suggesting it need not be a primary concern. Additionally, with annual growth projections exceeding 6.5 per cent, the economic outlook appears stable, even after considering the impact of tariffs.

"Under these conditions, we expect a status quo. A change of stance could probably be considered to assuage sentiment and bond yields. If at all, at a later point in time, there is a package for exporters against the backdrop of tariffs, a rate cut could be considered," Sabnavis stated.

An SBI research document has advocated for a 25 bps interest rate reduction, describing it as the 'best possible option' for the RBI, whilst other analysts suggest the central bank's monetary committee might maintain current rates in its bi-monthly review on October 1.

The Reserve Bank of India's Monetary Policy Committee, led by Governor Sanjay Malhotra, will commence a three-day policy discussion on Monday amidst current geopolitical strains and American implementation of 50 per cent duties on Indian exports.

The outcome will be revealed on October 1 (Wednesday).

The RBI implemented three successive reductions in the repo rate, totalling 100 basis points, starting in February, as consumer price index inflation showed a downward trend.

Nevertheless, during the August bi-monthly monetary review, the central bank maintained existing rates, adopting a cautious stance to evaluate how American tariffs and other global political events might affect India's economy.

“We expect the RBI to maintain its growth guidance for the current year at 6.5 percent, while revising its CPI inflation forecast lower to around 2.8 percent from 3.1 percent stated in August. This reflects the pickup in consumer spending, aided by the recent GST rate reduction and strong festival demand. While we do not expect a rate cut in this policy, given that forward one-year CPI inflation is projected closer to 5 percent, we believe the central bank will adopt a more dovish stance. The key concern remains transmission: despite 100 basis points of rate cuts, liquidity infusion of ₹5.5 lakh crore via OMOs, and a CRR cut of ₹2.5 lakh crore, borrowing costs remain elevated, especially for central and state governments.

Global developments are largely disinflationary, with lower commodity prices and weak demand due to tariff pressures. A stronger monsoon, 7 percent above normal, should further moderate food inflation. Underlying inflation trends remain subdued with capacity utilisation at about 75 percent. These factors could open space for further rate cuts of up to 50 basis points in the coming months, provided the RBI acknowledges the disinflationary spillover.

The fall in the rupee is not a major policy constraint, as it is cushioned by lower commodity and oil prices. Overall, we expect the Governor to highlight the growth impulse from GST cuts, signal comfort on inflation, and strike a dovish tone in the October 1 policy,” says Murthy Nagarajan, Head – Fixed Income, Tata Asset Management.

“The real estate sector plays a pivotal role in the economy, contributing significantly to employment and GDP. As the sector continues to benefit from improved buyer sentiment and strong housing demand, we look forward to a supportive stance from the RBI in the monetary policy during the ongoing festive season. We are hopeful of a rate cut as it would be highly encouraging for homebuyers and developers alike, potentially boosting affordability and investments in the sector. It would also strengthen market confidence and also act as a strong signal of policy support for the real estate sector and the broader economy. With softening home loan interest rates, the sector’s growth momentum will definitely accelerate further, and drive long term momentum for home ownership, especially for first-time homebuyers and the mid-income segment. However, for the intended benefits to materialize, the transmission of the reduced rates must also be faster, ultimately benefiting the real estate sector and contributing positively to overall economic expansion,” says Ramani Sastri - Chairman & MD, Sterling Developers.

The RBI Monetary Policy Committee meeting started on September 29 and after the two-day meeting, RBI governor Sanjay Malhotra will announce the decision at 10:00 AM today.

The RBI is anticipated to keep interest rates steady during its ongoing MPC meeting, though a 25 bps reduction would be considered an unexpected positive development, according to Sonal Badhan, an economist at Bank of Baroda.

In a discussion with ANI regarding potential implications, Badhan explained that the GDP projections for FY26 would likely remain stable even if the RBI implements a 25 bps reduction in October.

"Even if RBI decides to cut rate by 25bps, GDP forecast for FY26 is likely to remain unchanged as changes to monetary policy usually takes 2-3 quarters to show it's impact on the real economy" she said.

Regarding the central bank's potential approach if rates remain unchanged, Badhan suggested that the overall tone of communication might be more accommodative.