RBI Keeps Repo Rate at 5.5% as Inflation Risks Diminish and Growth Prospects Improve

The Reserve Bank of India (RBI) announced its much-anticipated monetary policy update for October 2025, deciding to keep the key repo rate at 5.5% for the second consecutive session. This decision follows several rate cuts earlier in the year and reflects the central bank’s neutral stance as it monitors how these changes affect the broader financial system.

Repo Rate and Policy Stance

• The repo rate remains unchanged at 5.5%, reflecting a balanced approach between sustaining growth and containing inflation.

• The RBI’s policy stance remains ‘neutral,’ allowing for flexibility in future adjustments as economic data evolves.

• Other rates include the Bank Rate and Marginal Standing Facility (MSF) at 5.75%, the Standing Deposit Facility (SDF) at 5.25%, and the Liquidity Adjustment Facility (LAF) at 5.25%.

• The pause follows three prior rate cuts totaling 100 basis points in 2025, encouraging banks and lenders to pass these benefits onto consumers.

Inflation Outlook: Subdued Price Pressures

• The RBI sharply lowered its FY26 CPI inflation forecast to 2.6%, down from earlier estimates of 4-5%.

• Lower inflation is attributed to:

  • Food price moderation.

  • Ample food stocks and good monsoon rains.

  • Recent GST reforms have reduced taxes on everyday items and commodities.

• The benign inflation environment provides the RBI with the space to focus more on growth without risking price instability.

GDP Growth Projections: Optimism Ahead

• RBI has revised India’s FY2025-26 GDP growth projection upward to 6.8%, supported by robust domestic consumption, investments, and favorable policy reforms.

• Q1 FY26 GDP grew at 7.8% year-on-year, the fastest pace in seven quarters.

• Growth forecasts for the year are: Q2 at 7.0%, Q3 at 6.4%, and Q4 at 6.2%.

• The outlook considers positive factors, including the implementation of GST 2.0, rising capacity utilization, and resilient financial conditions.

Impact on Loans, Investments, and Markets

• Home loan EMIs and borrowing rates remain stable, aiding households and supporting demand.

• Banks are urged to pass on past rate cuts to end-users further, potentially lowering borrowing costs if the trend persists.

• Lower inflation boosts purchasing power and investor sentiment, while strong growth forecasts attract foreign portfolio investment, supporting the Indian equities market.

Key Factors Behind RBI’s Decision

• The monetary policy comes against the backdrop of new GST reforms, US tariff hikes, and global trade uncertainties.

• RBI’s strategy is to observe the impact of earlier rate cuts and track emerging risks from the global environment and domestic reforms.

What to Watch Next

• RBI’s next meeting is scheduled for December 2025; stakeholders should monitor CPI trends, food prices, banking transmission, and global policy moves for future rate actions.

• The evolving scenario between softer inflation and resilient growth will guide the central bank’s choices into 2026