RBI monetary policy: Repo rate unchanged, growth outlook revised— 5 key highlights from RBI MPC outcome

RBI monetary policy: The Reserve Bank of India (RBI) on Wednesday, October 1, maintained a status quo on repo rate and policy stance, highlighting India's favourable growth-inflation dynamics.

Meeting Street expectations, RBI Governor Sanjay Malhotra-led Monetary Policy Committee (MPC) kept the repo rate unchanged at 5.5 per cent, and maintained the policy stance as ‘neutral’.

“Growth-inflation dynamics have shifted since the August monetary policy. The rationalisation of GST is expected to have a dampening effect on inflation,” said Governor Malhotra.

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RBI MPC Meeting: Key highlights

1. Status quo on rate, policy stance

The central bank decided to keep the repo rate and monetary policy stance unchanged as the risk of inflation remains lower due to a healthy monsoon and GST cuts, while the growth outlook remains bright.

"After a detailed assessment of the evolving macroeconomic conditions and the outlook, the MPC (Monetary Policy Committee) voted unanimously to keep the policy repo rate unchanged at 5.50 per cent. Consequently, the standing deposit facility (SDF) rate remains at 5.25 per cent while the marginal standing facility (MSF) rate and the bank rate remain at 5.75 per cent. The MPC also decided to continue with the neutral stance," said the RBI Governor.

After cutting rates by 50 basis points in June, the RBI maintained a status quo on rates in its August and September policy meetings.

2. Growth forecast revised upwards

The central bank highlighted that, despite an above-normal monsoon, good progress in kharif sowing and adequate reservoir levels have brightened the prospects for rural demand. The rationalisation of GST, along with buoyancy in the services sector and steady employment conditions, is supportive of overall demand.

However, the US tariffs remain a risk and could impact external demand.

Nevertheless, the RBI believes the implementation of structural reforms, including streamlining of GST, may offset some of the adverse effects of the external headwinds.

The RBI has raised India's FY26 GDP growth estimates to 6.8 per cent from the previously projected 6.5 per cent.

The Q2FY26 growth forecast was raised to 7 per cent from 6.7 per cent, while the Q3FY26 GDP estimates were trimmed to 6.4 per cent from 6.6 per cent earlier.

The RBI expects Q4 FY26 GDP growth to be 6.2 per cent, down from the earlier projected 6.3 per cent. Q1FY27 GDP estimates were also trimmed to 6.4 per cent from 6.6 per cent.

3. Inflation sees a downward revision

The RBI revised inflation forecast downward to 2.6 per cent for FY26 from the earlier projected 3.1 per cent.

Q2 inflation projection was cut to 1.8 per cent from 2.1 per cent earlier, Q3 estimates were lowered to 1.8 per cent from 3.1 per cent, and Q4 estimates were cut to 4 per cent from 4.4 per cent. CPI inflation estimated for Q1FY27 was also trimmed to 4.5 per cent from 4.9 per cent.

"The progress of the southwest monsoon has been satisfactory. Healthy kharif sowing, adequate reservoir levels and comfortable buffer stocks of food-grains should keep food prices benign," said the RBI Governor.

"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," said the governor.

4. Internationalisation of the Indian rupee

The RBI Governor proposed permitting AD banks to lend in Indian rupees to non-residents from Bhutan, Nepal and Sri Lanka for cross-border trade transactions.

Moreover, the central bank also proposed establishing transparent reference rates for the currencies of India’s major trading partners to facilitate INR-based transactions.

Additionally, the RBI propose permitting wider use of SRVA balances by making them eligible for investment in corporate bonds and commercial papers.

5. Additional measures

The RBI Governor announced 22 additional measures aimed at strengthening the resilience and competitiveness of the banking sector, improving the flow of credit, promoting ease of doing business, simplifying foreign exchange management, and enhancing consumer satisfaction. Some of them were:

(i) The RBI proposed to introduce risk-based deposit insurance premiums with the currently applicable flat rate of premium as the ceiling.

(ii) The central bank proposed to remove the regulatory ceiling on lending against listed debt securities and enhance limits for lending by banks against shares from ₹20 lakh to ₹1 crore and for IPO financing from ₹10 lakh to ₹25 lakh per person.

(iii) To reduce the cost of infrastructure financing by NBFCs, the RBI proposed to reduce the risk weights applicable to lending by NBFCs to operational, high-quality infrastructure projects.

(iv) The central bank proposed to provide greater flexibility to banks for opening and maintaining transaction accounts of borrowers, such as current accounts and CC/OD accounts.

(v) The RBI proposed to rationalise FEMA regulations regarding non-residents establishing their business presence in India.

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