The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 5.50%. The MPC, led by Governor Sanjay Malhotra, made this decision on October 1, 2025, following a three-day meeting that began on September 29. This marks the second consecutive time the rate has remained steady after a cumulative reduction of 100 basis points earlier in the year. The committee has also decided to maintain a 'Neutral' stance.
Key Highlights of the Decision
- Repo Rate: Remains unchanged at 5.50%.
- Policy Stance: Maintained as 'Neutral'.
- Previous Rate Cuts: The RBI had cut rates by a total of 100 basis points since February 2025. This included a 50 basis point cut in June 2025.
- GDP Growth Projection: Revised upward to 6.8% for fiscal year 2026, from an earlier estimate of 6.5%.
- Inflation Forecast: For FY26, the RBI lowered its full-year CPI inflation forecast to 3.1% from 3.7%.
Factors Influencing the Decision
Several factors played a role in the MPC's decision to hold the repo rate:
- Subdued Inflation: Retail inflation has remained below the RBI's medium-term target of 4%. In August, it eased to a six-year low of 2.07%.
- GST Rate Reduction: The government's recent GST rate reduction is expected to have a moderating impact on inflation and stimulate consumption.
- Global Uncertainties: External risks, including potential tariffs on Indian exports, rupee depreciation, and geopolitical tensions, have increased uncertainty around trade and capital flows.
- Impact of Previous Rate Cuts: The MPC is evaluating the effects of the 100 basis points rate cut delivered earlier in the year.
Implications of a Neutral Stance
The MPC's 'Neutral' stance indicates a flexible approach, allowing it to respond to future economic data as needed. This means the RBI could consider future rate cuts if inflation softens further or growth falters. Conversely, any increase in prices could prompt a tightening of monetary policy.
Expert Opinions and Market Reactions
Most economists expected the RBI to maintain the status quo, citing subdued inflation and growth risks. Goldman Sachs anticipates a possible 25 basis point rate cut in December 2025, contingent on benign inflation and a dovish outlook from the Federal Reserve. The decision to keep rates unchanged is expected to bring stability to the market. Loan EMIs and fixed deposit rates are likely to remain stable. Sectors such as housing, auto, and banking may benefit from this stability.
Additional Key Decisions and Proposals
In addition to the repo rate decision, the RBI also announced or proposed the following:
- Expected Credit Loss (ECL) Framework: The ECL framework is proposed to apply to banks and financial institutions from April 1, 2027, with a five-year implementation period.
- Regulatory Changes in Lending Against Securities: The central bank proposed removing the ceiling on lending against listed debt securities and increasing limits for lending against shares from ₹20 lakh.
- Revised Basel III Norms: Revised Basel III norms will also take effect from April 1, 2027.
- Real GDP Growth: Real GDP growth for the year has been revised upward to 6.8% from the earlier estimate of 6.5%, reflecting stronger-than-expected economic performance.
