RBI MPC Keeps Repo Rate Unchanged at 5.50% in October Policy Review

The Reserve Bank of India (RBI) on October 1 kept the repo rate unchanged at 5.5 per cent in its October policy review, in line with market expectations. Following an assessment of the current economic and financial environment, the Sanjay Malhotra-led six-member Monetary Policy Committee (MPC) unanimously decided to maintain the status quo, after delivering a cumulative 100-basis-point cut earlier this year. The MPC also decided to continue with a neutral policy stance.

However, two members, Dr Nagesh Kumar and Professor Ram Singh, were of the view that the stance should be changed from neutral to accommodative.

This was the first MPC meeting after the US imposed 50 per cent tariffs on Indian goods in August and the Goods and Services Tax (GST) Council announced major tax reforms in September.

The Standing Deposit Facility (SDF) rate remains at 5.25 per cent. The Marginal Standing Facility (MSF) rate and the Bank Rate remain at 5.75 per cent.

Governor Malhotra said, growth and inflation dynamics have changed since the August monetary policy review. He added that the GST rationalisation is expected to ease inflationary pressures, while higher tariffs could slow down export growth.

The MPC observed that the overall inflation outlook has turned even more benign in the last few months, due to a sharp decline in food prices and the rationalisation of GST rates.

The MPC also noted that growth outlook remains resilient supported by domestic drivers, despite weak external demand. It is likely to get further support from a favourable monsoon, lower inflation, monetary easing and the salubrious impact of recent GST reforms, The RBI Governor added.

RBI MPC Meeting: GDP Growth Projections

Real gross domestic product (GDP) growth for the year has been revised upward to 6.8 per cent from the earlier estimate of 6.5 per cent.

Q2 FY26 is expected to grow 7.0 per cent, up from 6.7 per cent, while Q3 FY26 is projected at 6.4 per cent, down from 6.6 per cent, and Q4 FY26 at 6.2 per cent, down from 6.3 per cent. For Q1 FY27, growth is seen at 6.4 per cent, slightly below the previous 6.6 per cent.

RBI MPC Meeting: Inflation Projections

The RBI revised its CPI inflation forecast for FY26 to 2.6 per cent, down from the earlier 3.1 per cent. Q2 FY26 is seen at 1.8 per cent, down from 2.1 per cent, Q3 FY26 at 1.8 per cent, down from 3.1 per cent, Q4 FY26 at 4.0 per cent, down from 4.4 per cent, and Q1 FY27 at 4.5 per cent, down from 4.9 per cent.

Repo Rate Left Unchanged: What It Means For Home Buyers

Since the RBI has kept the repo rate unchanged, your home loan EMIs and interest payments will remain the same.

The cumulative 100 basis point rate cut delivered so far this year has already enhanced borrowing affordability in a meaningful way, Raoul Kapoor, Co CEO, Andromeda Sales and Distribution.

To put this into perspective, he explained, "A 100 bps cut reduces the EMI on a Rs 1 lakh loan with a 20-year tenure by approximately Rs 65 per lakh, translating into savings of nearly Rs 1,625 and Rs 3,250 per month respectively for loans of Rs 25 lakh and Rs 50 lakh.

Current Account Deficit Narrows To $2.4 billion

India’s current account deficit (CAD) moderated to $2.4 billion, or 0.2 per cent of GDP, in Q1 of 2025-26, down from $8.6 billion, or 0.9 per cent of GDP, in Q1 of 2024-25.

The moderation was driven by a higher net services surplus and strong remittance inflows, which more than offset the impact of a higher merchandise trade deficit, the MOC explained.

The MPC noted that merchandise trade continued to face pressure during July-August 2025. However, buoyant services exports, driven by software and business services, along with robust remittance inflows, are expected to keep the current account deficit manageable for the full year.

On the capital flow side, net foreign direct investment hit a 38-month high in July 2025, supported by higher Foreign Direct Investment (FDI) inflows and lower repatriation and outward investment. Net foreign portfolio investment, however, saw outflows of $3.9 billion between April and September, affecting both equity and debt markets.

India’s foreign exchange reserves stood at a comfortable $700.2 billion as of September 26, enough to cover over 11 months of merchandise imports. The MPC said the external sector remains resilient, giving confidence that India can meet its external obligations without strain.

Despite strong macro fundamentals, the Indian rupee has experienced some depreciation and volatility. The RBI said it is closely monitoring the currency and will act as needed to maintain stability.

Measures To Strengthen Banks, Expand Credit And Ease Lending

The RBI announced a package of twenty-two additional measures aimed at strengthening the banking sector, improving credit flow, and promoting ease of doing business.

Strengthening Banking Resilience

The central bank said the Expected Credit Loss (ECL) framework for provisioning will be made applicable to most Scheduled Commercial Banks and All India Financial Institutions (AIFIs) from April 1, 2027. A glide path until March 31, 2031, will help banks manage the one-time impact of potentially higher provisioning.

Under Basel III norms, revised capital adequacy standards will come into effect for commercial banks starting April 2027. Additionally, the RBI plans to introduce a Standardised Approach for Credit Risk, expected to reduce capital requirements, particularly for MSMEs and residential real estate, including home loans.

The regulator also proposed a risk-based deposit insurance premium, allowing banks to be incentivized for sound risk management practices, while the current flat rate will serve as a ceiling.

Improving Credit Flow

The RBI announced a significant increase in lending limits against shares, from Rs 20 lakh to Rs 1 crore per borrower, and raised initial public offering (IPO) financing limits from Rs 10 lakh to Rs 25 lakh per person, which means banks can now lend more to investors to participate in IPOs, making it easier for retail investors to invest in newly listed companies. Risk weights for lending by NBFCs to high-quality operational infrastructure projects will also be reduced to lower financing costs.

Internationalisation of the Rupee

The central bank said authorised dealer (AD) banks will soon be permitted to lend in Indian Rupees to non-residents in Bhutan, Nepal, and Sri Lanka for cross-border trade transactions. Additionally, special rupee vostro account (SRVA) balances will now be eligible for investment in corporate bonds and commercial papers, supporting wider rupee internationalisation.

RBI MPC Meeting: What Experts Say

Experts are of the opinion that RBI's latest policy decision is broadly in-line with market expectations.

"The RBI’s decision to maintain status quo on policy rates comes in line with market expectations. As the RBI Governor highlighted, prevailing uncertainties around global trade tariffs and geo-political issues leave little room for further rate cuts at this stage," said Kapoor of Andromeda Sales and Distribution.

Contrary to our expectation of another cut in the repo rate, the MPC preferred to stay put, even as inflation has declined more rapidly than anticipated, said Dharmakirti Joshi, Chief Economist, Crisil.

Joshi added, the RBI perceives risks around its growth projections to be balanced, affording it the elbowroom to wait and watch, given incomplete transmission of the previous policy rate reductions and lingering global uncertainties. Apart from monitoring transmission, it is keeping an eye on the ongoing cash reserve ratio cuts.

Saurabh Bansal, Founder of Finatwork Investment Advisor, a Sebi-registered investment advisor, said the RBI wants to wait and see how the recent fiscal measures, including direct and GST tax cuts, and monetary actions play out, while being cautious about external risks such as US trade tariffs and geopolitical tensions.

Jyoti Prakash Gadia, Managing Director at Resurgent India, a Sebi-registered Category 1 merchant bank, said the RBI observed that the transmission of previous rate cuts, aggregating to 1 per cent during 2025, is still incomplete. Along with this, Gaida added, the prevailing uncertainties arising from the global tariff war have further prompted the RBI to continue with the pause rather than opt for any immediate changes.

Rajeev Radhakrishnan, CFA, CIO - Fixed Income, SBI Mutual Fund, believes the RBI's latest policy decision is a more balanced forward guidance that acknowledges downside risks to growth, along with a downward revision in future CPI projections, has clearly opened up additional policy space. Furthermore, Radhakrishnan said, regulatory measures aimed at enhancing the flow of bank credit to various segments of the economy have been announced. "However, the absence of specific steps to improve the transmission of policy easing into markets and the broader economy remains a dampener.''