The October 2025 MPC decision reflects caution balanced with optimism. The RBI Monetary Policy Committee (MPC) held its meeting from September 29 to October 1, 2025, chaired by Governor Sanjay Malhotra. It unanimously voted to keep the policy repo rate unchanged at 5.50%, with the standing deposit facility at 5.25% and the marginal standing facility/Bank Rate at 5.75%, maintaining a neutral policy stance. Real GDP growth in Q1 FY 2025-26 was a strong 7.8%, led by robust private consumption, fixed investment, revival in manufacturing, and steady expansion in services; growth forecast for the full year 2025-26 was revised up to 6.8%.

Rural demand remains strong on the back of a good monsoon; urban demand is gradually reviving; public sector revenue expenditure is robust; construction and services indicators are healthy, although capital goods show some moderation. The global economic outlook remains clouded by policy uncertainty, trade frictions, and persistent geopolitical tensions, which pose downside risks to India’s exports and external demand.

Resilient domestic growth trends continue, led by consumption, investment, and favorable monsoon-riven rural demand, even as external demand remains weak due to global uncertainties. Headline CPI inflation dropped to an eight-year low of 1.6% in July 2025, increased slightly to 2.1% in August; a sharp decline in food inflation and stable fuel inflation contributed to this trend, while core inflation remained contained at 4.2% (3.0% ex-precious metals).

The inflation outlook for FY 2025-26 was revised down significantly to 2.6% from 3.7% (June) and 3.1% (August) due to GST rate cuts and better food price management; risks to inflation are balanced. The MPC believes there is now policy space for future growth support, given the moderation in inflation, but prefers to wait for clearer outcomes from existing monetary/fiscal measures and external risk resolution before moving to an easing stance. Two MPC members favored shifting the stance from neutral to accommodative, but consensus remains on status quo for now.

The minutes of this meeting will be released on October 15, 2025. The next MPC meeting is scheduled for December 3 - 5, 2025.

Final verdict

Consensus expectation was on rate pause; market focus on forward guidance, borrowing supply, and inflation trajectory going forward. The RBI recognizes improved inflation prospects, resilient growth momentum, and supportive reforms, but urges patience in the face of global and trade related uncertainties.

With inflation projected near target and policy space available, the central bank stands poised to support growth when needed while maintaining overall stability. The government borrowing schedule released earlier last week, and currency depreciation can increase the complexity for the RBI to manage liquidity in the system. The RBI noted that system liquidity is neutral to slightly surplus and would be enhanced by the completion of the CRR cut through November.

Macroeconomic and Financial Developments

1. Growth Trends: India’s Q1 GDP (FY 2025-26) registered robust 7.8% real growth, with gross value added (GVA) at 7.6%—manufacturing and services both contributed strongly. High-frequency indicators affirm sustained economic resilience. Urban demand is gradually reviving, while rural demand benefits from a successful monsoon and healthy agricultural activity.
2. Key points supporting growth: Construction activities (cement, steel output) maintained healthy expansion, although some moderation in capital goods data suggests external uncertainties are impacting investment. The implementation of growth-inducing reforms, particularly GST rate rationalization, provides an additional boost to consumer spending and demand for services.
3. Growth projections: Real GDP forecast for FY 2025-26 upgraded to 6.8%, with quarter-wise estimates: Q2: 7.0%, Q3: 6.4%, Q4: 6.2% and Q1 FY 2026-27: 6.4%. Risks are evenly balanced, but caution prevails due to ongoing tariff issues and global uncertainty.
4. Factors restraining inflation: Good progress of the southwest monsoon, abundant kharif sowing, and adequate food buffer stocks supporting lower food inflation. Introduction of GST rate cuts, reducing prices for several CPI basket items.
5. Revised CPI projections for FY 2025-26: Large base effects are expected to push headline inflation up in Q4; risks are assessed as evenly balanced.