The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) concluded its three-day policy review on October 1, 2025, with Governor Sanjay Malhotra announcing the committee's decision. The announcement, which was made at 10:00 am, was highly anticipated by markets, businesses, and policymakers alike, as it impacts borrowing costs, lending rates, and overall economic activity.

Repo Rate Decision Market analysts largely expected the central bank to hold the repo rate steady at 5.5 per cent, continuing its "wait-and-watch" approach amid a mixed global and domestic economic backdrop. The MPC ultimately decided to reduce the policy repo rate by 50 basis points to 5.50 percent with immediate effect. Consequent adjustments were made to the Standing Deposit Facility (SDF) rate, which now stands at 5.25 percent, and the Marginal Standing Facility (MSF) rate and the Bank Rate, both at 5.75 percent.

Factors Influencing the Decision Several factors were considered by the MPC in arriving at its decision. India's inflation rate, which had been hovering near the lower end of the 2%-6% tolerance band, was expected to ease further after GST rate cuts. The MPC also took into account the impact of US tariffs on India's GDP growth rate, which had come in at a surprise 7.8% in April-June 2025. Furthermore, the rupee's slump to a record low versus the US dollar and Governor Malhotra's cautious approach to RBI rate cuts were also considered.

Expert Opinions Prior to the MPC announcement, expert opinions were divided. A Bloomberg News survey revealed that 24 out of 39 economists predicted the RBI repo rate to remain unchanged at 5.5%, while 15 expected a quarter-point reduction. Even some of those forecasting a hold acknowledged the justification for easing. A recent report by the State Bank of India (SBI) had recommended a 25 basis point cut, arguing that it would enhance the RBI's reputation as a “forward-looking central bank". Nuvama also suggested that the likelihood of a cut was "a close call," citing cooling demand, lower inflation, and elevated tariffs as factors supporting easing.

August MPC Meeting In its last meeting in August 2025, the RBI had chosen to keep the repo rate unchanged at 5.5 per cent, while maintaining a neutral stance. This decision was made just days before new US tariffs raised duties to 50 per cent from August 27. Despite global uncertainties, the central bank cited positives on the domestic front, including a strong monsoon season, softening inflation, improved industrial output, and stable financial conditions, as evidence of resilience in the Indian economy. The RBI reaffirmed its confidence in India's macro fundamentals, maintaining its real GDP growth forecast at 6.5 per cent for FY26, crediting government-led infrastructure investments and a consistent monetary framework.

Growth and Inflation Projections The MPC projects real GDP growth for 2025-26 at 6.5 percent, with quarterly projections of 6.5 percent, 6.7 percent, 6.6 percent, and 6.3 percent for Q1, Q2, Q3, and Q4, respectively. The risks are evenly balanced. CPI inflation is projected at 3.7 percent for the financial year 2025-26, with quarterly projections of 2.9 percent, 3.4 percent, 3.9 percent, and 4.4 percent for Q1, Q2, Q3, and Q4, respectively. These projections take into account various positive and negative factors that may impact the economy in the coming months. The RBI aims to achieve a medium-term target for consumer price index (CPI) inflation of 4 percent within a band of +/- 2 percent, while also promoting growth.