E-Paper
RBI monetary policy: A repo rate decision is going to be a juggling act for Governor Sanjay Malhotra
India’s Monetary Policy Committee, headed by RBI Governor Sanjay Malhotra, is set to announce its repo rate decision on Wednesday, 1 October.
The Reserve Bank of India’s repo rate decision on Wednesday is going to be a close call, amid benign inflation and still robust economic growth in the face of 50% US tariffs on India.
While a majority of economists—24 of 39 surveyed by Bloomberg News—predict the RBI repo rate to stay at 5.5%, 15 expect a quarter-point reduction. Even many of those forecasting a hold say there’s justification to ease.
The six-member monetary policy committee, led by RBI Governor Sanjay Malhotra, will need to juggle a number of competing objectives this week.
- India’s inflation rate, which is hovering near the lower end of the 2%-6% tolerance band, is expected to ease further after GST rate cuts.
- India’s GDP growth rate, which came in at a surprise 7.8% in April-June 2025, is expected to take a hit from US tariffs on India—the impact of which is already showing.
- The rupee’s slump to a record low versus the US dollar and Malhotra’s cautious approach to RBI rate cut raise the hurdles for easing.
- The US Federal Reserve’s quarter-point cut in September is also giving the RBI some room to ease further, according to Bloomberg Economics.
So far this year, the RBI has reduced the repo rate by 100 basis points in three tranches but opted for a status quo at the last MPC meeting in August.
“We believe it is a close call—with a risk of a dovish pause pushing the cut down to the December meeting,” Aastha Gudwani, an economist at Barclays Plc., wrote in a note to clients. “The overhang of neutral-to-hawkish communication in the past may warrant a calibrated approach than an outright cut.”
Malhotra’s commentary and outlook on economic growth will be closely watched for signals of future monetary policy. Economists see scope for the repo rate to drop as low as 5% in this cycle. Against that backdrop, here’s what the stock market will look out for in Malhotra’s monetary policy speech at 10:00 am on Wednesday:
Inflation and Growth
The central bank is likely to keep its growth forecasts unchanged at 6.5% for the fiscal ending 31 March 2026, while trimming its inflation projections.
While India’s inflation rate has inched up to 2.07%, the outlook is benign—thanks to a healthy monsoon and GST rate cuts on essential as well as discretionary goods. That’s also likely to offset the drag from US tariffs on India and keep the GDP growth rate near the upper end of the government’s 6.3%–6.8% forecast range.
The RBI sees India’s inflation rate at 3.1% for FY26, but Gaurav Kapur—an economist with IndusInd Bank Ltd.—estimates a much lower 2.7%.
Bonds, Bond Yield, Rupee
Indian bonds have been stuck in a narrow trading range in recent weeks, with analysts arguing that only strong dovish signals from the central bank can spark a rebound.
Traders remain cautious ahead of the October policy meeting, having been wrong-footed by the RBI’s recent moves. The central bank’s shift to a neutral policy stance in June, followed by a rate hold in August despite easing inflation, signaled a higher threshold for future rate cuts. Since June, the yield on the benchmark 10-year bond has climbed more than 30 bps.
“Our view is for the RBI holding rates steady but with a dovish tilt,” said Abhishek Upadhyay, an economist with ICICI Securities Primary Dealership Ltd. “A dovish pause may be the best option when it comes to transmission, both in the bond market as well as the banking channel.”
Traders will also watch for the governor’s comments on the currency amid the trade tensions. Analysts at ANZ Bank Ltd. suggest the RBI may be tolerating the rupee’s weakness as a deliberate policy adjustment to protect the competitiveness of Indian exporters.
With inputs from Bloomberg.
