Abhishek Sinha
The Reserve Bank of India (RBI) has kept the repo rate unchanged at 5.50%, while retaining its stance at “Neutral” in the October Monetary Policy Committee (MPC) meeting. However, shifting dynamics in growth and inflation have opened the door for a possible rate cut in the coming months.
Two MPC members favored a move towards an “Accommodative” stance, reflecting an increasing debate around monetary easing, according to an SBI Capital Markets report.
Key Policy Highlights at a Glance
| Indicator | Current Projection | Previous Projection | Remarks |
|---|---|---|---|
| Repo Rate | 5.50% (Unchanged) | – | Neutral stance, 2 votes for accommodative |
| Inflation (FY26) | 2.6% y/y | 3.1% (Aug’25) | Sharp 50 bps downward revision |
| GDP Growth (FY26) | 6.8% y/y | 6.5% y/y | Upgrade driven by strong H1 |
| Q3FY26 Growth | 6.4% | 6.6% | Outlook moderated |
| Q4FY26 Growth | 6.2% | 6.3% | Slight downgrade |
| Nominal GDP | 8.5% | 8.5% | No change |
| CAD (FY26) | Manageable | – | Import cover: 11 months |
| FDI Inflows (Apr–Jul’25) | USD 10.8 bn (+200% YoY) | – | July 2025: 38-month high |
| Bond Yields (G-sec) | 6.50% ± 0.25% | – | Anchored, low spreads |
| Rate Transmission | ~100 bps cuts since Feb’25 | – | Fully passed to fresh deposits |
Inflationary Pressures Recede
RBI slashed its FY26 inflation projection to 2.6%, down from 3.1% projected in August 2025. Strong monsoons, robust food production, and GST rate rationalisation have kept food inflation under control.
While overall inflation concerns have receded, Core inflation remains sticky due to precious metal prices, and crude oil continues to pose risks amid geopolitical uncertainty, as highlighted in the SBI Capital Markets report.
Growth Outlook: Strong H1, Softer H2
India’s GDP growth forecast for FY26 has been raised to 6.8%, mainly on account of a strong first half. However, growth is expected to taper in the latter half, with projections trimmed for Q3 (6.4%) and Q4 (6.2%).
The report notes that while GST reforms and fiscal flexibility will support domestic demand, external headwinds from tariffs may weigh on exports. With government borrowing for FY26 expected to be ₹100 billion lower than budget estimates, fiscal space exists for further stimulus if required.
External Stability Holds, FDI Surges
India’s Current Account Deficit (CAD) is expected to remain under control, with 11 months of import cover backed by strong forex reserves. Despite the rupee touching record lows against the US dollar, investor confidence is firm.
Net FDI flows jumped over 200% year-on-year in the first four months of FY26 to USD 10.8 billion, with July 2025 marking a 38-month high, as per SBI Capital Markets analysis.
Bond Market Anchored, Transmission Improves
The RBI highlighted that the transmission of 100 bps repo cuts since February 2025 has been efficient, especially for fresh deposits. Lending rates have adjusted faster than outstanding deposit rates, reflecting improved pass-through.
Government securities (G-secs) yields are expected to stay around 6.50% ± 0.25%, keeping lending spreads tight and bond markets stable.
Outlook: Rate Cut on the Horizon
With inflation easing sharply and growth momentum set to moderate in H2, analysts expect the RBI to deliver a 25 bps rate cut in the current easing cycle. The timing, however, will depend on how economic data unfolds in the next two quarters.
For now, the central bank has chosen to pause—but the tone is clearly shifting towards accommodation.
✅ Courtesy: SBI Capital Markets report titled “A Prelude to a Rate Cut?”
