RBI repo rate for 2 October 2025

RBI Repo Rate Latest News

• The RBI’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.5% with a ‘neutral’ stance on October 1, 2025, after already cutting rates by 100 bps this year. 
• With retail inflation projected to average 2.6% in 2025-26, well below the 4% target, the RBI has space for future cuts but chose to “keep its powder dry.”
• Instead of relying only on rate changes, the RBI unveiled 22 structural measures to spur growth through regulatory easing and reforms. 
• Economists noted the central bank’s message: growth support can extend beyond interest rates, with a focus on long-term stability and resilience.

RBI Monetary Policy October 2025: Growth Focus with Stability

• Repo rate unchanged at 5.5% with a neutral stance.
  • A neutral stance implies that the central bank neither seeks to stimulate the economy nor tighten liquidity, balancing efforts to control inflation without impeding growth.
• RBI balances growth momentum with financial stability.
• Inflation projected well below target, creating policy space for future easing.

Stronger Growth Ahead

• GDP growth forecast revised up to 6.8% for FY 2025-26 (from 6.5%).
• Drivers: strong consumption, rising investments, government spending, good monsoon, GST 2.0, and better credit flow.
• Quarterly projections: Q1 – 7.8%, Q2 – 7.0%, Q3 – 6.4%, Q4 – 6.2%.
• FY 2026-27 growth estimated at 6.6%, assuming stability and normal monsoon.
• Consumer optimism remains high in both urban and rural households.

Global Agencies Reaffirm Growth

• Agencies highlight resilience amid global uncertainties:
  • IMF – 6.4% (FY26)
  • Fitch – 6.9% (FY26), 6.3% (FY27)
  • S&P Global – 6.5% (FY26)
  • UN – 6.3% (FY26), 6.4% (FY27)
  • OECD – 6.7% (FY26)
• Confidence reinforced by structural reforms, strong domestic demand, and vibrant services sector.

Prices Stay Stable

• CPI inflation forecast cut to 2.6% for FY 2025-26 (earlier 3.1%).
• Inflation fell to 1.6% in July 2025, an 8-year low.
• Driven by 9-month food price decline (-10.5%) and milder summer temperatures.
• GST rationalisation (Sept 2025) reduced consumer prices for 11.4% of the CPI basket.

Global Demand Steady

• Current account deficit narrowed to 0.2% of GDP in Q1 FY 2025-26 (from 0.9% a year ago).
• Supported by services exports and record remittances (US$35.3 billion).
• Merchandise exports up 2.5%, imports up 2.1% (Apr–Aug 2025).
• Gross FDI inflows at US$ 37.7 billion; net inflows at US$ 10.8 billion.
• Major contributors: Singapore, US, Mauritius, UAE, Netherlands.

Why RBI Kept Repo Rate Unchanged

• During recent MPC meet, the RBI adopted a neutral stance — recognising strong domestic momentum, low inflation, and reforms as positives, but staying vigilant about external risks.
• Stability is prioritised for now, while keeping options open for future rate action if needed.

External Headwinds: Global Uncertainty

• Trade tensions and tariffs with the US may hurt external demand.
• Geopolitical risks and volatility in global financial markets remain downside risks.
• These global shocks could spill over into India’s trade flows and capital markets, warranting caution.

Domestic Tailwinds: Growth Drivers

• GDP Growth Upgrade: RBI revised FY26 projection to 6.8% from 6.5%, citing reforms and strong demand.
• Reform Push: GST rationalisation and structural reforms announced in August are expected to cushion external shocks.
• Agriculture & Rural Boost: Above-normal monsoon, kharif sowing, and reservoir levels support farm output and rural demand.
• Urban Consumption: Buoyancy in services sector and stable jobs lift consumption.
• Investments Rising: Capacity utilisation, conducive financial conditions, and improving domestic demand will aid fixed investment.

Inflation: Well Within Comfort Zone

• CPI Inflation Revised Down: FY26 forecast cut to 2.6% from 3.1%, driven by falling food prices and GST rationalisation.
• Food Inflation Stable: Good harvest prospects and stable supply keep food prices in check.
• Impact of GST Reforms: Lower CPI prices for multiple items reduce headline inflation.
• Inflation trajectory firmly within the 2–6% RBI comfort zone, opening space for growth support later if needed.

Growth vs Risks: The Balancing Act

• Upside Surprise: Q1 FY26 GDP grew 7.8%, fastest in five quarters.
• Caution Ahead: Q3 growth expected to slow due to trade frictions and tariffs.
• MPC highlights that while domestic drivers are resilient, external vulnerabilities remain significant.

Rationale for Holding Rates

• Wait-and-Watch Approach: Earlier frontloaded monetary easing and fiscal measures are still working through the system.
• Policy Flexibility: Keeping repo steady ensures the RBI retains room to cut if external shocks worsen.
• Borrower Impact: Lending rates linked to repo remain unchanged; MCLR loans may adjust with banks’ cost of funds.

Source: PIB | IE | IE