RBI Holds Repo Rate Steady, But Shakes Up Economic Forecasts

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Well, the latest meeting of the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has wrapped up, and the big headline is stability. On October 1, 2025, the committee unanimously decided to hit the pause button, keeping the key policy repo rate steady at 5.5%. But honestly, that’s not even the most interesting part of the story. The real surprises are buried in the numbers—specifically, the RBI’s updated forecasts for growth and inflation, which paint a fascinating picture of the Indian economy.

Key Highlights

• ✓ The MPC has kept the policy repo rate unchanged at 5.50% for the second time in a row.
• ✓ The real GDP growth forecast for FY26 has been revised upwards to a promising 6.8%.
• ✓ CPI inflation projection for FY26 saw a significant downward revision to just 2.6%.
• ✓ RBI Governor Sanjay Malhotra cited global tariff uncertainties as a key reason for the cautious approach.
• ✓ The committee maintained its "neutral stance," balancing the need for growth with inflation control.

Holding the Line: A Prudent Pause

So, let's get into the main decision first. The MPC voted unanimously to keep the short-term lending rate, or repo rate, exactly where it is at 5.50%. This isn't a huge shock, as it’s the second consecutive time they've chosen to hold steady. Along with this, the other key rates are also staying put: the standing deposit facility (SDF) rate remains at 5.25%, and both the marginal standing facility (MSF) rate and the Bank Rate are at 5.75%.

The big question is, why play the waiting game? According to RBI Governor Sanjay Malhotra, it's a calculated move. He explained that while the economic outlook has improved, the committee felt it was "prudent to wait for the impact of policy actions to play out." Essentially, they want to see how previous monetary and fiscal measures settle before making their next move, especially with so much uncertainty brewing on the global stage. It’s a classic case of watching and waiting for more clarity to emerge.

💡 What's Interesting: The Governor noted that "the current macroeconomic conditions and the outlook has opened up policy space for further supporting growth." This hints that while they're pausing now, the door might be open for future rate cuts if conditions are right.

The Big Shake-Up in Forecasts

Here's where things get really exciting. While the repo rate decision suggests caution, the RBI’s revised economic projections signal some serious optimism about the domestic economy. First up, they’ve revised their real GDP growth forecast for the 2025-26 fiscal year upwards to 6.8%. That’s a notable jump from the earlier projection of 6.5%, showing confidence in India's economic resilience.

Breaking it down by quarter, the RBI expects growth to hit 7.0% in Q2, 6.4% in Q3, and 6.2% in Q4. What’s driving this positive outlook? Governor Malhotra pointed to strong domestic drivers, a favorable monsoon, and the "salubrious impact" of recent GST rate rationalisation. It seems the Indian economy is holding its own, even with weak external demand trying to pull it down.

But the even bigger news might be on the inflation front. The RBI has slashed its CPI inflation forecast for FY26 all the way down to just 2.6%. To put that in perspective, this projection was 3.7% in June and 3.1% in August. Mr. Malhotra explained that the "overall inflation outlook has turned even more benign" thanks to a sharp fall in food prices and those GST rate adjustments. This is a massive revision and suggests price pressures are well under control.

Balancing Domestic Strength with Global Storm Clouds

So, if growth is up and inflation is down, why not cut the repo rate to give the economy an extra boost? This is where the MPC's balancing act comes in. The decision to maintain a "neutral stance" reflects a careful weighing of domestic positives against international risks. On one hand, the Indian economy is showing real strength. Mr. Malhotra noted that a good monsoon and higher growth in Q1:2025-26 are signs of resilience.

On the other hand, the global picture is far from clear. The Governor was direct about the challenges, specifically mentioning "trade-related headwinds" and "tariff related developments." These are the primary reasons why the growth projections for the second half of the year (H2:2025-26) are expected to be slightly lower. The Governor explicitly stated that tariffs, in particular, will "moderate exports."

This creates a complex situation. The global economy, especially the U.S. and China, has been more resilient than expected, but the outlook remains "clouded amidst elevated policy uncertainty." Financial markets have been volatile, and the US dollar has been strengthening. The MPC is essentially saying that while things look good at home, they can't ignore the potential storms gathering on the horizon.

What This Means for You: Insights from the Experts

So, what does all this mean in practical terms? Experts are seeing this as a sign of cautious optimism. Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, pointed out that the upbeat GDP forecast and lower inflation numbers reflect the central bank’s confidence in the economy's resilience. He even suggested that the Governor's comments hint at the "possibility of one more rate cut," but that will depend entirely on how the data looks in the coming months.

For everyday people, especially those with loans or looking to borrow, this decision brings a welcome dose of stability. Pramod Kathuria, the Founder & CEO of Easiloan, highlighted this perfectly. He said the neutral stance "guarantees stability to borrowers across the board." When interest rates are stable, it gives home loan applicants much-needed clarity on their borrowing costs, which is fundamental for good financial planning.

Mr. Kathuria also noted that the RBI's cautious approach helps ensure that credit continues to flow without "fanning the inflationary trend." In short, the central bank is trying to create a stable environment where businesses and individuals can plan for the future without worrying about sudden shocks to the system. It’s a delicate dance between encouraging growth and keeping inflation in check, and for now, the RBI is holding its position right in the center.

Conclusion

To sum it all up, the latest MPC meeting delivered a message of steadfastness mixed with a healthy dose of optimism. By keeping the repo rate at 5.5%, the Reserve Bank of India is signaling that it wants more time to assess the economic landscape before making any changes. However, the significantly upgraded GDP growth forecast of 6.8% and the sharply lower inflation projection of 2.6% show a strong belief in the underlying strength of the Indian economy.

The bottom line is a story of two halves: a thriving domestic scene powered by factors like the GST reforms, set against a backdrop of global trade uncertainties and potential headwinds from tariffs. The RBI's "neutral stance" is its way of navigating this complex environment, providing stability for now while keeping its options open for the future. It's a game of careful observation, and we'll all be watching to see what the next move will be.