Balancing Growth and Stability as Economy Shows Resilience
New Delhi: The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting commenced today, with economists anticipating a 0.25% reduction in the repo rate from its current level of 6.50%. This potential easing, the first since February 2025, signals the central bank’s intent to support economic growth amid moderating inflation and global uncertainties.
The three-day deliberation, chaired by RBI Governor, will conclude on October 1, with the policy announcement scheduled for 10:00 AM IST. Market participants are closely watching for cues on liquidity measures and forward guidance, as India’s GDP growth for Q1 FY26 clocked in at 7.2%, surpassing expectations, while retail inflation eased to 4.8% in August, within the RBI’s 2-6% target band.
Inflation Trends and Growth Dynamics
India’s inflation has shown a downward trajectory, dropping from 5.5% in July to 4.8% last month, driven by softening food prices and stable global commodity costs. Core inflation, excluding volatile food and fuel, stands at 4.2%, giving the MPC room to maneuver. However, persistent geopolitical tensions, including US tariffs and Middle East volatility, pose upside risks to oil prices, a key import for India.
On the growth front, robust domestic demand, government capex, and a rebound in private investments have propelled the economy forward. The Index of Industrial Production (IIP) rose 5.1% in July, while services PMI hit a 14-month high. Yet, urban consumption remains subdued due to high borrowing costs, with bank credit growth at 13.2%, the slowest in two years.
Repo Rate Outlook and Policy Implications
The current repo rate of 6.50%, unchanged since August 2024, has kept liquidity tight, impacting sectors like real estate and autos. A 25 basis points cut to 6.25% would reduce EMIs on home and car loans by Rs 500-1,000 monthly for every Rs 50 lakh borrowed, injecting Rs 1.5 lakh crore into the economy over the next year, per CRISIL estimates.
Governor Das has maintained a “neutral” stance since June, but recent data suggests a pivot towards “accommodative.” Analysts from ICICI Securities predict the cut, citing the MPC’s focus on sustainable growth above 7%. However, a minority view warns against premature easing, fearing imported inflation from a weakening rupee at Rs 84.20/USD.
Global Context and Investor Sentiment
Globally, the US Federal Reserve’s recent 50 bps cut has spurred capital flows to emerging markets, with FIIs netting Rs 15,000 crore into Indian equities this month. A dovish RBI could further attract inflows, boosting the Sensex, which closed at 82,694 on Wednesday.
Equity markets reacted positively, with banking stocks like HDFC Bank up 1.2% in pre-market trading. Bond yields dipped to 6.85%, signaling expectations of lower rates. Experts urge the MPC to outline a glide path for future cuts, potentially bringing the repo to 5.75% by March 2026.
Conclusion: A Balancing Act
The MPC faces a delicate task: fueling growth without reigniting inflation. A measured 0.25% cut could strike the right balance, supporting ‘Viksit Bharat’ while safeguarding macroeconomic stability. As India navigates post-pandemic recovery, the outcome of this meeting will set the tone for festive-season spending and Q3 GDP trajectory. Investors and policymakers alike await Das’s address for clarity on the road ahead.
