RBI Holds Repo Rate at 5.5%, Lifts FY26 GDP Growth Forecast to 6.8%

The Reserve Bank of India (RBI) concluded its October 2025 Monetary Policy Committee (MPC) meeting with key announcements that reaffirmed its cautious yet forward-looking approach in managing the nation's monetary policy. Governor Sanjay Malhotra addressed the outcome on October 1, 2025, after a three-day deliberation starting September 29, 2025, amid global economic uncertainties and recent domestic reforms.

Interest Rate Decision

The RBI MPC voted to hold the repo rate steady at 5.5 percent, maintaining a neutral policy stance for the second consecutive meeting. This reflects the central bank’s confidence in India’s robust economic growth and subdued headline inflation, currently hovering well below its medium-term target of 4 percent. The decision comes after a cumulative rate reduction of 100 basis points earlier in 2025, which saw the repo rate lowered from 6.5 percent to 5.5 percent through three successive cuts between February and June. August’s bi-monthly review also saw a status quo, with the RBI preferring to assess the full impact of domestic and global developments before moving further.

Inflation and Growth Outlook

The MPC revised its consumer price index (CPI) inflation forecast downward to 2.6 percent for FY26, marking a significant reduction from its earlier projection of 3.1 percent in August. This revision relies on factors such as benign food prices, a favorable monsoon, and the positive impact of recent Goods and Services Tax (GST) reforms on household consumption. With inflation trending near the lower band of the RBI’s 2 to 6 percent target, policymakers saw little reason to tighten or further ease monetary conditions at this time.

On the growth front, the real GDP growth projection for FY26 is projected at 6.8 percent (6.5 percent earlier), reflecting confidence in India’s ability to withstand ongoing global volatility, including the US tariffs and broader geopolitical uncertainties.

Policy Rationale and Management Commentary

Governor Malhotra emphasized that the RBI’s “wait and watch” approach continues to be shaped by the need for stability and flexibility in the face of both internal and external risks. While some economists and brokerage houses advocated a further 25 basis point cut, citing scope for boosting domestic demand and addressing restrictive policy rates, the MPC ultimately judged that the risks from global trade tensions and volatility warranted maintaining rates.

Conclusion

The October 2025 RBI Policy Meet underscored the central bank’s focus on balancing growth and inflation management in a complex global and domestic environment. By maintaining the repo rate at 5.5 percent, lowering its inflation forecast, and reaffirming a neutral stance, the RBI signaled its intent to remain supportive of economic momentum while preparing for potential risks.