The Reserve Bank of India (RBI) Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, has decided to keep the repo rate unchanged at 5.50% for the second consecutive meeting, retaining a neutral policy stance. Announced on October 1, 2025, during the fourth bi-monthly review of FY26, this unanimous decision reflects caution amid evolving global trade risks, particularly US tariffs, while acknowledging strong domestic growth and benign inflation. The MPC also revised FY26 GDP growth upward to 6.8% from 6.5% and lowered CPI inflation to 2.6% from 3.1%, signaling optimism despite external headwinds.
For borrowers eyeing home loans, investors tracking market sentiment, and economists monitoring India’s 6.7-7% growth trajectory, the status quo provides stability—keeping EMIs steady but delaying potential relief. With the cumulative 100 basis points cut earlier in 2025 (from 6.50% to 5.50%), the RBI is gauging transmission effects before further easing. Let’s unpack the rationale, forecasts, and what it means for the economy.
The Decision: Status Quo with Upbeat Projections
The MPC’s 6:0 vote to hold the repo rate at 5.50%—unchanged since the August 2025 pause—prioritizes monitoring the impact of recent GST rationalization and US tariffs on inflation and exports. The neutral stance allows flexibility for future cuts, with the Standing Deposit Facility (SDF) at 5.25% and Marginal Standing Facility (MSF) at 5.75% also unchanged.
Governor Malhotra highlighted: “The effects of earlier front-loaded cuts are still unfolding. We remain vigilant on tariff uncertainties but see robust domestic demand supporting growth.” This follows a dovish tilt in June 2025, when a 50 bps cut brought the rate to 5.50%.
Revised FY26 forecasts:
| Metric | Previous Estimate | New Estimate | Change |
|---|---|---|---|
| Real GDP Growth | 6.5% | 6.8% | +0.3% |
| CPI Inflation | 3.1% | 2.6% | -0.5% |
The inflation downgrade credits GST slab consolidation (5% and 18%) and food price moderation (2.07% in August, a six-year low), while GDP uplift reflects 7.8% Q1 FY26 expansion driven by private consumption (7.4%) and investment (7.5%).
Why the Pause? Balancing Growth and Global Risks
The RBI’s decision balances strong fundamentals—Q1 GDP at 7.8%, CAD at 0.2% of GDP—with external pressures like Trump’s 50% tariffs on Indian goods (effective August 2025), potentially dragging exports by 0.1-0.2%. Domestic tailwinds, including 20% capex hike to ₹11.11 lakh crore and monetary easing (50-75 bps cuts projected), offset this, with inflation well within the 2-6% band.
Analyst reactions:
- Prashant Tapse (Mehta Equities): “Status quo aligns with tariff caution; expect 25 bps cut in December if inflation stays low.”
- Dharmakirti Joshi (CRISIL): “GDP upgrade to 6.8% reflects resilience; neutral stance keeps options open.”
Transmission of prior cuts is robust: Lending rates down 100 bps, deposit rates by 75 bps since February 2025.
Impact on Borrowers and Investors: Steady EMIs, Bullish Markets
The unchanged rate maintains borrowing costs:
- Home Loans: EMIs stable at 8.50-9% for ₹50 lakh (20 years), saving ₹5,000-₹6,000/month vs. pre-cut levels.
- Corporate Lending: Supports capex; 15-20% credit growth expected in FY26.
Markets reacted positively: Sensex/Nifty up 1-1.5% on announcement, banking stocks leading gains. Bond yields eased 5 bps to 6.8%, signaling easing bets.
| Stakeholder | Implications |
|---|---|
| Home Buyers | No EMI hike; 8.50% rates sustain affordability. |
| Investors | Bullish on equities; rupee steady at 88.7/USD. |
| Exporters | Tariff watch; services growth to offset goods drag. |
Conclusion: RBI’s Steady Hand – Growth Amid Caution
The RBI’s decision to keep the repo rate at 5.50% is a measured pause, balancing 6.8% FY26 growth with tariff risks, while inflation at 2.6% buys room for future easing. With neutral stance and strong Q1 momentum, India remains the fastest-growing major economy. December’s MPC will test transmission—watch for 25 bps cut if tariffs ease. mint
