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Informist, Wednesday, Oct. 1, 2025

 

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--MPC left repo rate unchanged at 5.50%
--MPC unanimously voted to keep repo rate unch at 5.50%
--MSF, Bank rates remain unchanged at 5.75%; SDF rate at 5.25%
--Policy stance remains 'neutral'
--RBI Malhotra describes Feb-Aug as easing cycle so far
--MPC Kumar, Singh were of view policy stance should be accommodative 

 

NEW DELHI – The Reserve Bank of India's Monetary Policy Committee in a unanimous decision Wednesday left the policy repo rate unchanged at 5.50%, the central bank's Governor Sanjay Malhotra said. The committee also retained its 'neutral' policy stance. However, two members -- Nagesh Kumar and Ram Singh -- were of the view that the stance should be changed from neutral to accommodative. Malhotra noted that the decision was a fallout of inflation outlook turning out to be more benign than previously projected. 

 

Leaving room for further easing of key policy rate, Malhotra said, "the current macroeconomic conditions and the outlook has opened up policy space for further supporting growth." The committee has lowered the repo rate by 100 basis points so far this year. It started lowering interest rates in February with a 25-bps cut, followed by another 25-bps cut in April, and a larger-than-expected 50-bps reduction in June.

 

Malhotra, however, said the committee noted that the impact of the front-loaded monetary policy actions and the recent fiscal measures is still playing out. "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," he said.

 

The rate-setting panel's decision was on expected lines. Eleven of the 15 economists polled by Informist had expected the MPC to hold interest rates at this meeting.

 

The RBI Wednesday lowered its inflation forecast for the current fiscal by 50 bps to 2.6%. The central bank also revised upwards its GDP growth projection for FY26 by 30 bps to 6.8%.

 

The Monetary Policy Committee observed that the overall inflation outlook has turned even more benign in the last few months, Malhotra said. "The average headline inflation for 2025-26 is now revised lower from 3.7% and 3.1% projected in June and August policy, respectively, to 2.6%," he said. Malhotra also expects core inflation for this year and for 2026-27 (Apr-Jun) to remain contained.

 

Malhotra cautioned that though there has been a significant moderation in inflation, the prevailing global uncertainties and tariff-related developments are likely to decelerate growth in FY26 and beyond. India's exports and capital formation face risks from the imposition of the US tariffs. The US has imposed a 25% reciprocal tariff on India, with an additional 25% as punitive tariff for having trading relations with Russia. US' higher tariffs on India result in a pricing disadvantage of 30–35% for Indian exports, making it less competitive compared with those from China, Vietnam, Cambodia, the Philippines, and other Southeast and South Asian countries. The US accounts for nearly 20% of India's total exports. 

 

The standing deposit facility rate remains at 5.25% while the marginal standing facility rate and the Bank Rate remains at 5.75%.  End

 

Reported by Priyasmita Dutta and Sagar Sen

Edited by Tanima Banerjee

 

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