RBI Monetary Policy October 2025: RBI Keeps Repo Rate Steady at 5.50%

The first day of October 2025 opened with all eyes on Mint Street as the Reserve Bank of India’s Monetary Policy Committee (MPC) prepared to announce its latest decision. Monetary policy days are always charged, but this one feels especially crucial. With global headwinds, inflation stabilising, and growth holding up, the RBI is at a crossroads: does it pause and watch, or does it push ahead with another rate cut?

The Economic Backdrop

India’s economy has been a story of resilience in the past year. Growth remains robust with GDP for Q1 FY26 coming in at around 7.8% year-on-year — an enviable figure in a world where major economies are grappling with stagnation. Yet, the growth story isn’t perfectly balanced. Investment remains patchy, private capex is still waiting to fully take off, and exports face uncertainty due to tariffs and slowing global demand.

On the inflation front, things are looking surprisingly benign. Consumer Price Index (CPI) inflation has consistently stayed within the RBI’s comfort zone of 2–6%, a sharp contrast to the volatile food price surges of the past. This has given the central bank a little breathing room, though the risk of food or energy price shocks continues to hang in the air.

The external environment, however, isn’t as supportive. The rupee has slipped to record lows against the dollar, hovering around ?88.80 per USD, reflecting both global strength in the dollar and India’s vulnerability to trade tensions. With the U.S. slapping hefty tariffs on Indian pharma and IT exports, capital flows and trade balances remain delicate issues for policymakers in New Delhi and Mumbai.

OUTCOME

The Reserve Bank of India (RBI) on October 1, 2025, announced its much-anticipated monetary policy decision, keeping the repo rate unchanged at 5.50%. This decision was widely expected by economists and market watchers, as inflation remains a concern despite strong growth momentum. By maintaining rates, the RBI signals its continued commitment to anchoring inflation expectations while not derailing India’s economic recovery story.

Why RBI Chose to Pause Again

The RBI’s Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, voted unanimously to maintain status quo on interest rates. The central bank’s decision is rooted in the delicate balancing act between inflation management and growth support.

·        Inflation Risks Remain High: While headline CPI has eased from over 7% levels earlier this year, it still hovers close to 6%, the RBI’s tolerance ceiling. Food inflation continues to be volatile due to supply-side issues in vegetables, pulses, and cereals.

·        Global Cues & Fed Policy: The US Federal Reserve has slowed its pace of rate cuts, while oil prices remain firm near $85–90 per barrel. Cutting rates now could have risked capital outflows and added pressure on the rupee.

·        Stable Growth Outlook: India’s economy remains resilient, with GDP projected at 6.6% for FY26. Strong government capital expenditure and private consumption provide RBI the comfort to focus on inflation stability rather than growth stimulus.

·        Currency Management: The rupee has already been under pressure against the US dollar, and a rate cut could have triggered further depreciation. Holding steady provides currency stability.

Detailed Policy Announcements

·        Repo Rate: Maintained at 5.50%.

·        Reverse Repo Rate: 3.35% (unchanged).

·        MSF (Marginal Standing Facility) Rate: 5.75%.

·        Policy Stance: The RBI maintained its stance of “withdrawal of accommodation”, signaling that liquidity management remains a priority to ensure inflation moderates towards the 4% target.

·        Inflation Forecast: The RBI revised FY26 CPI projection to 5.2%, with Q3 and Q4 expected to average around 5–5.3%. Risks remain tilted to the upside due to food and fuel prices.

·        Growth Outlook: FY26 GDP growth retained at 6.6%, with quarterly growth expected between 6.3%–6.7%, supported by strong manufacturing, services, and government spending.

Sector-Wise Impact

1. Banking & Financials

For banks, steady rates mean predictable net interest margins (NIMs). Deposit rates may stay firm, while lending rates remain elevated, supporting profitability.

2. Real Estate & Housing

Home loan borrowers will continue facing higher EMIs, but a pause provides relief against further hikes. Developers, however, may see slower demand revival until rate cuts begin.

3. Automobile & Consumer Durables

Rate-sensitive sectors like auto and durables had been hoping for a cut to spur consumption. Demand may remain steady but not see a big jump until borrowing costs reduce.

4. Bond Market

Government bond yields remained steady around 7.1%, as markets had already priced in a pause. A dovish signal for 2026 could trigger a bond rally.

5. Currency & Forex Markets

The rupee reacted positively post-policy, holding firm against the dollar. RBI’s intervention and stable rates provide comfort to foreign investors.

RBI Governor’s Message

In his statement, Governor Sanjay Malhotra emphasized:

·        Price stability remains the top priority, as sustained inflation can hurt growth in the long run.

·        The RBI will remain data-dependent, especially watching food prices, monsoon impact, and crude oil trends.

·        While growth is robust, inflation risks prevent premature easing.

·        Liquidity will continue to be managed actively to ensure financial stability.

Outlook: When Could the Next Move Happen?

Analysts believe that the RBI may consider its first rate cut in early-to-mid 2026, provided inflation cools significantly. Factors that will decide the next move include:

·        A sustained fall in food inflation.

·        Cooling of global oil prices.

·        Fed’s monetary policy trajectory.

·        Rupee stability and capital inflows.

Until then, the RBI is expected to stay in “wait-and-watch” mode, using liquidity tools rather than policy rates to balance inflation and growth.

Conclusion

The RBI’s decision to keep the repo rate steady at 5.50% reflects a cautious, stability-first approach. For borrowers, it means EMIs remain high but stable; for businesses, cost of borrowing stays elevated but predictable. While the market had hoped for a signal of rate cuts, the RBI has made it clear that the fight against inflation is not yet over.

For now, the message is clear: India’s growth is strong, but inflation control remains the RBI’s ultimate priority.