October RBI Policy: Rates Flat, Growth Raised, Inflation Lowered

1 Oct 2025 , 12:43 PM

WHAT CHANGED SINCE AUGUST 2025 MONETARY POLICY

Three things changed for the Indian economy between the August monetary policy and the October monetary policy. Firstly, the 50% penal tariffs became effective in late August and now India has 1-month experience of such penal tariffs. Secondly, the US raised the fees on H1-B visas almost 50-fold to $1,00,000 or nearly ₹89 lakhs. The idea was to restrict the H1-B visas only to highly skilled workers from other countries. It is likely to have an impact as India alone accounted for 70% of H1-B visas issued by the US. But the big positive was the GDP growth for the first quarter of FY26, which came in at 7.8%, against the street expectation of 6.5%. These formed the context for October policy.

SOUL OF OCTOBER POLICY – INDIA WILL GROW IRRESPECTIVE OF TARIFFS

The October policy in a sense was a statement of intent and purpose. It was a statement that the Indian economy would grow, despite the steep tariffs imposed by the US on Indian exports. India is still predominantly a domestic consumption driven economy. The government is now willing to provide monetary and fiscal support required to ensure that the growth rates do not falter. The positive sentiments have been underlined in the 7.8% GDP growth recorded in Q1FY26, although the tariff impact will be more prominent in the second and third quarters of FY26. Now for the gist of the October policy statement.

HIGHLIGHTS OF RBI POLICY STATEMENT – OCTOBER 2025

Here are some of the key takeaways from the October 2025 policy statement.

• RBI held repo rates at 5.50% for the second policy in a row. All the 6 members of the MPC voted unanimously to hold the repo rates at 5.5%.
• This holds the SDF (reverse repo) rate at 5.25%, while the bank rate and marginal standing facility (MSF) stay put at 5.75%. These are repo-linked rates.
• The stance of the monetary policy stays at “Neutral.” However, 2 MPC members (Dr Nagesh Kumar and Prof Ram Singh) voted to shift the stance to “Accommodative.”
• In line with the positive surprise in Q1FY26 GDP, the RBI MPC raised the FY26 GDP forecast by 30 bps from 6.5% to 6.8%. Global tariff impact is expected to be limited.
• Inflation forecast for FY26 was further cut by 50 bps to 2.6%, as food inflation remained low. RBI has cut its FY26 inflation estimates by 220 bps since February 2025.
• Financial markets had moved from net liquidity surplus to deficit in September due to advance tax payouts. Balance 75 bps CRR cut tranche to take care of that.

The RBI policy did not have too much of policy action, but the intent and confidence in the growth engine was what stood out about the policy statement.

MPC CUTS FY26 INFLATION ESTIMATE BY 50 BPS TO 2.6%

RBI MPC aggressively cut its inflation estimates for FY26 by another 50 bps to 2.6%. Effectively, the RBI MPC has now cut FY26 inflation forecast by 110 bps in the last 2 policies and by a total of 220 bps since February 2025 from 4.8% to 2.6%. While core inflation remains an issue, it has been more than compensated by lower food and fuel inflation. In addition, the RBI MPC is of the view that the robust Kharif output (despite late damage) and the sharp cuts in GST rates; should keep inflation in check. The FY26 headline inflation is pegged at 2.6%; split quarter-wise as Q2FY26 (1.8%), Q3FY26 (1.8%), Q4FY26 (4.0%), and Q1FY27 (4.5%). The fall in inflation is, both, front-loaded and also back-ended.

MPC RAISES FY26 REAL GDP GROWTH BY 30 BPS TO 6.8%

The surprisingly robust 7.8% GDP growth in Q1FY26, triggered the GDP upgrade. High frequency indicators continue to hint at strong growth momentum. Apart from the solid Kharif season, the revival in services sector is also a factor. Also, the cut in GST is likely to trigger a consumption boom in the festive season, while higher capex by the government will address the capacity slack. Above all, low inflation will offset any impact that tariffs and visa fees may have on the nominal GDP growth. The FY26 real GDP growth is upgraded by 30 bps to 6.8%; broken up quarter-wise as Q2FY26 (7.0%), Q3FY26 (6.4%), Q4FY26 (6.2%), and Q1FY27 (6.4%). The second quarter is expected to be another robust growth quarter.

DEVELOPMENT AND REGULATORY POLICIES ANNOUNCED

Apart from the policy statement, the RBI has also announced several key policy changes to be implemented. Here is a quick look.

• To enhance credit risk management, scheduled commercial banks will shift to the expected credit loss (ECL) framework rather than the current incurred loss model.
• The existing bar on overlap in business undertaken by a bank and group entities is being removed. This will give more operational freedom to banks.
• To further liberalize bank exposure to capital markets RBI will enable financing of acquisitions, enhance limit to lend against shares / REITS, and allow principle-based lending to capital market entities.
• RBI has undertaken review of ECB norms to simplify the rules, removal of restrictions, review of end-use restrictions, and simplification of reporting.
• Holders of Special Vostro Accounts will have a wider array of investment options. Apart from G-Secs and T-Bills, they can also invest in corporate bonds and CPs.

Overall, the October policy is a statement of economic strength and positive intent. For now, the RBI has reserved its rate cut options for a future date!