Key Numbers at a Glance
Repo Rate: 5.5% (unchanged)
Policy Stance: Neutral
FY26 GDP Growth Forecast: 6.8% (up from 6.5%)
FY26 Inflation Forecast: 2.6% (down from 3.1%)
The Reserve Bank of India’s Monetary Policy Committee (MPC) concluded its October 2025 meeting with a measured decision: the repo rate stays at 5.5% and the stance remains “neutral.” On the surface it looks like the status quo, but it’s really a deliberate balance: confidence in India’s improving economy, tempered by caution about global uncertainty
Why Hold Steady Now?
So far in 2025, the RBI has already cut the repo rate by a full 100 basis points from 6.5% to 5.5%. That easing is still transmitting into the economy through lower borrowing costs and stronger credit flows. The MPC judged that it was sensible to pause and evaluate these effects before making further adjustments.
In addition, global uncertainties from tariffs to currency volatility make policy continuity the safer option for now. The decision reflects an approach of consolidating gains at home while staying watchful of risks abroad
MPC outlook on inflation
The RBI lowered its FY26 inflation forecast to 2.6%, compared to 3.1% earlier. The trajectory is notably subdued through mid-year: 1.8% in both Q2 and Q3 FY26, before climbing back to 4.0% in Q4 FY26 and 4.5% in Q1 FY27.
Why did the projection fall?
The central bank pointed to four main reasons:
Food disinflation – Prices of vegetables and cereals have softened sharply, with July–August CPI prints already showing headline inflation near 2%.
GST reforms – Recent rationalisation of tax slabs has lowered costs in parts of the consumption basket, pulling down average price levels.
Base effects – Last year’s elevated readings are dropping out of year-on-year comparisons, especially in Q2 and Q3, keeping inflation artificially low until Q4.
Supply-side support – A favourable crop outlook and easing input and energy costs are helping keep core inflation contained.
Together, these factors explain why inflation is projected well below the RBI’s 4% target in the first half of FY26, before gradually converging back toward it later in the year.
External Headwinds
If domestic conditions are so encouraging, why not ease further? The reason lies in risks beyond India’s borders.
The MPC flagged three concerns: the recent US tariff hike on Indian goods, the Federal Reserve’s first rate cut of 2025, which has unsettled global currency flows, and ongoing volatility in commodities and geopolitics. Together, these factors create an uncertain backdrop that could quickly test India’s external stability.
Against this context, the RBI’s decision signals caution: domestic resilience is no shield against external turbulence.
Beyond the Repo Rate
Alongside the pause, the RBI unveiled measures designed to support credit and market activity. Risk weights for banks have been lowered to encourage lending, while a risk-based deposit insurance premium has been proposed to reduce costs for stronger banks. Lending flexibility has been enhanced as well: the limit on loans against shares has been raised to ₹1 crore from ₹20 lakh, IPO financing caps expanded, and restrictions on lending against listed debt securities removed.
At the same time, the RBI emphasized that it will remain alert to rupee volatility and step in when necessary to preserve currency stability.
The Balancing Act Ahead
The October MPC meeting was notable less for action than for restraint. With inflation easing more sharply than expected and growth showing resilience, the temptation to cut further was real. But the choice to pause reflects the central bank’s priority: safeguarding macroeconomic stability while global risks remain elevated.
The next reviews, scheduled for December 3–5, 2025 and February 4–6, 2026, will hinge on whether tariffs dampen trade, how the rupee responds to global market shifts, and if the inflation trajectory stays benign.
For now, India’s position is enviable growth momentum is firm, inflation is subdued, and the RBI has chosen stability as its guiding principle.