RBI October MPC Preview: Status Quo Expected Amid Muted Inflation, Mounting External Headwinds

The Reserve Bank of India's Monetary Policy Committee is expected to retain the benchmark lending rate at 5.5%, despite expectations of further rate cuts down the line. The RBI MPC will announce the decision on October 1.

Of the 37 economists polled by Bloomberg, 11 expect a status quo, while the rest expect a 25 basis point cut. The repo rate is currently at 5.5%.

'A rate cut shall be a close call,' stated a note by Nuvama. While weak demand, steep tariffs and benign inflation call for the RBI to complement the government's GST reform with a rate cut, the MPC may like to wait and see the effect of tax cuts on demand, it stated.

Besides, the anticipated rise in CPI and ongoing INR weakness could weigh on their minds.

CPI Inflation: Easing But Will See An Eventual Uptick

"The inflation outlook for 2025-26 has become more benign than expected in June," the MPC resolution stated in August. Large favourable base effects combined with steady progress of the southwest monsoon, healthy kharif sowing, adequate reservoir levels and comfortable buffer stocks of food grains have contributed to this moderation.

CPI inflation, however, is likely to edge up above 4% by Q4FY26 and beyond, as unfavourable base effects and demand-side factors from policy actions come into play. 

GDP Growth: Downside Risks Rise 

At least four developments, including US H1B visa fees, will have a bearing on overall GDP growth prints, said Pranjul Bhandari, chief economist at HSBC. On a one-year horizon, we estimate that the 50% tariff rate and the higher H-1B visa fees could take away 0.7 percentage points from GDP growth, while the GST tax cuts and statistical deflator issues could add 0.9 percentage points, she estimated.

While this would leave official GDP growth numbers higher than the 6.5% potential. If the deflator boost is excluded, one will be able to quickly tell that actual growth on the ground feels weaker than official numbers suggest, she added.

The demand profile in the economy has come under more broad-based stress, stated a research note by DSP mutual fund. Even segments once expected to provide some respite, like the premium category, are now showing signs of strain. It's still too early to say whether the GST rate cut can meaningfully ‘boost' consumption.

High-frequency indicators show that while GST collections have seen a deceleration, E-way bills have continued to maintain traction at 24.1% in Jul-Aug 2025 as against 20.9% in Q1, stated a note by ICICI.

Non-oil imports saw a contraction in August, as did sales of passenger vehicles. However, chances of an improvement in high-frequency indicators in September remained, aided by the festive season and GST rate cuts kicking in.

Will H2 FY26 Be Better? 

An above-average monsoon should also support output in winter months and thus implies rural demand should remain buoyant even in H2, as visible in tractor sales, stated the note by Sameer Narang, chief economist at ICICI. The likely uptick in consumption should incentivise the private sector to eventually undertake capex, he said, adding that credit offtake has also seen signs of revival and may pick up further, driven by festive demand.While tariffs would be a headwind from September onwards, a trade deal in the coming months could change the sentiment, he added.