Will the RBI Monetary Policy Committee Keep Rates Steady in October?
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Synopsis
As the RBI prepares for its October review, expectations suggest they will maintain the current repo rate. This decision is influenced by positive economic indicators such as the impact of GST reforms and strong GDP growth. Will this decision stabilize the economy, or will inflation pressures force a change? Read on to find out!
Key Takeaways
- RBI likely to keep repo rate unchanged.
- GST reforms positively impacting demand.
- GDP growth stronger than anticipated.
- Inflation projected to rise in the coming months.
- Expected G-sec yields to remain steep.
New Delhi, Sep 25 (NationPress) The monetary policy committee (MPC) of the Reserve Bank of India is expected to uphold the current repo rate during its review in October. This decision is influenced by the favorable effects of GST reforms on demand, robust Q1 FY26 GDP growth, and an anticipated inflation trajectory that is likely to rise thereafter, according to a report released on Thursday.
The inflation rate remains subdued due to the GST rationalization (with the FY2026 average now hovering around 2.6 percent).
The report from ICRA indicates that the transmission from the previous 100 bps rate cut is nearly complete for new deposits (-94 bps) but has been modest for existing deposits (-18 bps).
In addition, the Weighted Average Lending Rate for new loans has decreased by 60 bps, compared to a 42 bps reduction for existing loans.
Further substantial transmission to lending rates is anticipated to be limited over the next few months.
The report forecasts that the 10-year G-sec yield in the government bond market is likely to fluctuate between 6.40-6.60 percent, with the yield curve expected to remain steep.
This is attributed to adequate liquidity keeping short-term rates stable, while long-term yields remain sticky amid fiscal concerns and demand-supply dynamics.
“Globally, the gap between the 10Y India G-sec and the 10Y US Treasury yield expanded to 236 bps in September 2025, up from 209 bps at the end of June 2025, following a rate cut by the US Federal Reserve,” the report elaborated.
In September 2025, the surplus in systemic liquidity decreased after being substantial from June to August, primarily due to advance tax outflows.
Moreover, a pending 75 bps CRR cut slated for October-November 2025 and G-sec redemptions (Rs. 1.0 trillion) in early November 2025 are expected to bolster liquidity, counterbalancing the currency leakage typically seen during the festive season, the report indicated.
The RBI is likely to continue its Variable Rate Repos (VRRs) to manage any temporary tightness.
The report also suggests that GST rationalization could reduce headline CPI inflation by 25-50 bps during Q3 FY2026-Q2 FY2027 compared to earlier projections.
“The average CPI inflation for FY2026 is now estimated to be around 2.6 percent (down from 3.0 percent),” the report highlighted.
Point of View
The RBI's likely decision to maintain the repo rate suggests a cautious yet optimistic approach to managing economic stability. By balancing growth and inflation, the RBI demonstrates its commitment to fostering a resilient economy while navigating external pressures. The focus should remain on sustainable growth, ensuring that reforms translate into tangible benefits for the populace.
NationPress
25/09/2025
Frequently Asked Questions
Why is the RBI expected to maintain the repo rate?
The RBI is likely to keep the repo rate unchanged due to positive economic indicators, including the favorable effects of GST reforms on demand and strong GDP growth.
What impact does GST reform have on inflation?
GST reform is anticipated to lower headline CPI inflation by 25-50 bps during Q3 FY2026-Q2 FY2027, thus easing inflationary pressures.
What is the current inflation trajectory?
The inflation trajectory is projected to rise after remaining lower due to GST rationalization, with an average CPI inflation for FY2026 now estimated at around 2.6 percent.
How are lending rates affected by the recent rate cuts?
The transmission of prior rate cuts has been significant for new loans but muted for existing ones, indicating a complex relationship between policy rates and lending rates.
What are the expected trends in the G-sec market?
The 10-year G-sec yield is expected to trade between 6.40-6.60 percent, reflecting market dynamics influenced by liquidity and fiscal concerns.
