RBI MPC: Will holding rates steady further weigh on Indian stock market sentiment?

RBI MPC: The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) began its bi-monthly meeting on September 29, with the policy decision scheduled for October 1.

In its last policy decision on August 6, RBI Governor Sanjay Malhotra kept the repo rate unchanged at 5.5 per cent and maintained the policy stance as "neutral."

Since then, the US Fed has cut rates by 25 basis points, and the US administration has become more aggressive in its protectionist stance by announcing a hike in H-1B visa fees and a 100 per cent tariff on branded and patented pharmaceutical imports.

Will the RBI cut rates?

India's favourable growth-inflation dynamics suggest the RBI has space to maintain the repo rate at the current level.

India’s consumer price index (CPI)-based inflation rose to 2.07 per cent in August 2025 from 1.61 per cent in July. While this was the first monthly increase in ten months— since October 2024— inflation remained below the RBI’s 4 per cent target level and within its prescribed tolerance band of 4-6 per cent.

Additionally, India's economic growth exceeded expectations in the first quarter of the current financial year. India’s GDP clocked a strong 7.8 per cent year-on-year growth in the June quarter.

This suggests the central bank will maintain its policy rates and stance on October 1 and might wait a couple of months and then cut rates if needed. Another reason for a possible cut later is the ongoing tariff war and its effect on macroeconomic indicators.

"Most likely, there will be no cut this time. They reduced rates at the June meeting, so the RBI may prefer to pause now and assess the impact before taking further action. They will want to see how the monsoon affects food prices and inflation, and how the last rate cut is transmitted through the banking system," said G. Chokkalingam, founder and head of research at Equinomics Research Private Limited.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, also believes it appears unlikely that the RBI will cut rates on October 1.

"I don’t think it looks likely. Of course, the current RBI governor is known to favour a cheap money policy, but from a growth perspective, the economy doesn’t really need a rate cut right now," said Vijayakumar.

"Our economy grew at 7.8 per cent in the first quarter, and with the recent GST rate cuts, the momentum—especially in sectors like automobiles—should continue. Automakers are reporting unprecedented order bookings, the best in 30 years, according to one industry executive. So in such an environment, why go for another 25-basis-point cut, especially in this time of uncertainty? It might still happen, but the growth-inflation dynamics don’t warrant another cut at the moment," said Vijayakumar.

Will a status quo on repo rate weigh on market sentiment?

The domestic market is struggling to overcome persisting concerns over US tariffs, foreign capital outflow, and weak earnings.

The bigger concern for the market is the trade tussle between India and the US. Experts believe a trade deal between the two countries can rekindle the risk appetite of foreign investors as well and trigger a bullish phase in the market.

Therefore, keeping the rates unchanged may not add further pressure to the market sentiment.

"The RBI can maintain the status quo while giving a dovish message, and that’s probably the most likely scenario. Market sentiment has already been affected—equities aren’t rallying. But that’s mainly due to uncertainty over India–US trade negotiations. Nothing concrete has emerged, and the US administration keeps sending mixed signals," Vijayakumar underscored.

Chokkalingam believes a status quo on interest rates will largely be a non-event. However, if there’s a surprise cut, it could provide some comfort to the market, he said.

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