2025-10-01
A hold today keeps settings steady while growth and inflation paths are eased, so attention shifts to liquidity operations, credit conditions, FX stability and the pace of bank transmission. With FY26 GDP lifted to 6.8% and CPI reduced to 2.6%, the next move depends on incoming prices, activity data and external conditions.
The Monetary Policy Committee left the policy repo rate at 5.50% and retained a neutral stance, in line with broad expectations. [1]
The Standing Deposit Facility remains at 5.25%, while the Marginal Standing Facility and the bank rate stay at 5.75%, preserving the corridor around the unchanged policy rate.
Earlier in 2025, the MPC delivered cuts totalling 100 basis points before pausing at the previous meeting.
The central bank raised its FY26 real GDP growth projection to 6.8% from 6.5%, citing resilient domestic demand and recent reforms.
It lowered the FY26 CPI inflation forecast to 2.6% from 3.1% in August, reflecting softer food prices and GST rationalisation effects.
The quarterly CPI path points to 1.8% in Q2 and Q3 FY26, 4.0% in Q4, and 4.5% in Q1 FY27, which implies a gradual normalisation rather than a straight‑line glide lower.
As of 10:10 IST, the 10‑year government bond yield and the rupee were little changed versus pre‑decision levels, while domestic equities showed a modestly firmer tone on policy continuity.
The initial response suggested relief around steadier inflation forecasts and a supportive growth profile, with positioning tempered by the global backdrop.
At a glance: these settings and projections anchor the key numbers after today's decision.
| Item | Level/Change | Detail |
|---|---|---|
| Repo rate | 5.50% (unchanged) | Stance neutral |
| SDF / MSF / Bank rate | 5.25% / 5.75% / 5.75% | Corridor unchanged |
| FY26 GDP | 6.8% (from 6.5%) | Growth profile upgraded |
| FY26 CPI | 2.6% (from 3.1%) | Inflation path trimmed |
| Quarterly CPI path | 1.8%, 1.8%, 4.0%, 4.5% | Q2, Q3, Q4 FY26; Q1 FY27 |
With the repo rate steady and the stance neutral, the near‑term path for loan and deposit rates rests on transmission and funding conditions rather than a fresh policy impulse.
Banks that lagged in passing through earlier cuts may now face pressure to adjust external benchmark‑linked rates as liquidity and competition evolve.
For mortgages and MSME credit, market yields and spreads will matter as much as the policy rate while the curve remains anchored.
A lower CPI track to 2.6% broadens real policy space if the outlook holds, yet the return to 4.0% by Q4 FY26 argues for patience while disinflation beds in.
On growth, the 6.8% upgrade reflects domestic demand strength, though export‑facing sectors remain sensitive to external demand and trade frictions. [2]
The balance of risks stays even: upside from transmission and reforms; downside from the external environment and any price surprises.
How policy, liquidity, and external trade forces interact after the latest RBI decision.
Policy continuity keeps the focus on system liquidity management and the durable transmission of earlier easing into lending and deposit rates.
The operating framework aims to balance money market stability with adequate credit availability through the festival quarter.
Authorities will fine‑tune liquidity to support the recovery without reigniting price pressures as GST changes and global tariffs filter through supply chains.
Trade and tariff uncertainty clouds export demand and imported price dynamics at a time of cooling global growth.
These cross‑currents create offsetting forces on inflation and activity that justify a steady policy setting for now.
Priorities are orderly funding conditions, vigilance on imported inflation risks, and readiness for bouts of capital‑flow volatility.
If inflation tracks the new path and growth stays firm, INR stability should benefit from improved macro carry alongside prudent liquidity conditions.
In bonds, a steady 10‑year anchored near recent levels could support transmission to lending rates if supply and demand remain balanced into Q4. [3]
Any deviation in global yields or risk sentiment would feed through to the curve faster than policy itself can change.
These are the immediate factors to monitor after today’s decision; use them as a checklist for pricing across rates, FX, and credit.
Transmission pace: watch external benchmark‑linked rates and lending spreads for evidence of pass‑through into EMIs and MSME credit.
Liquidity stance: track operations and call money behaviour for signs of tighter or looser conditions into the festival period.
Prices and wages: compare incoming CPI prints with the 2.6% FY26 path and watch for wage‑price stickiness that could slow disinflation.
External demand: monitor export orders and trade volumes as global growth and tariff effects play through guidance.
Capital flows: follow equity and debt flows around global risk events and their impact on INR and the local curve.
A clean glide toward the quarterly CPI path, with steady activity, favours patience and further transmission before any fresh move.
A firming in prices, particularly in services, would extend the hold as the committee protects hard‑won credibility.
A sharper‑than‑expected growth slowdown with inflation inside the band could reopen discussion of incremental easing.
Today's hold secures stability while updated forecasts improve the policy cushion, so the constructive path runs through effective transmission, steady liquidity and contained imported pressures.
The market lens now shifts to whether bank pricing follows, the rupee stays orderly, and G‑secs remain anchored as the inflation path is tested by real‑time data.
Absent surprises, a neutral stance with steady rates looks fit for purpose.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment, or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
[1] https://www.reuters.com/world/india/india-central-bank-keeps-repo-rate-steady-widely-expected-2025-10-01/
[2] https://www.newindianexpress.com/business/2025/Oct/01/rbi-raises-fy26-gdp-forecast-to-68-signals-softer-inflation-path
[3] https://economictimes.indiatimes.com/markets/bonds/india-bond-yields-await-rbi-action-for-directional-break/articleshow/124246599.cms
