India’s Central Bank Holds Rates Again; Lifts FY26 GDP Growth Forecast To 6.8%

The Reserve Bank of India's Monetary Policy Committee (MPC) has maintained the repo rate at 5.50% in its latest review. The monetary policy stance remains neutral.

This marks a second consecutive pause from India’s central bank after three rate cuts earlier this year. This comes amid the backdrop of GST reforms, H-1 B visa concerns, and uncertainty over US tariffs.

The Governor of the Reserve Bank of India (RBI), Sanjay Malhotra, said that the growth-inflation narrative has altered since the last policy meeting in August. He added that while growth has remained resilient, tariff-related headwinds weigh on the outlook. 

RBI has raised FY26 GDP growth estimates to 6.8% from 6.5% earlier, and revised the FY26 CPI inflation forecast lower to 2.6% from 3.1% earlier. 

This policy decision, taken by the MPC, maintains the Standing Deposit Facility (SDF) rate at 5.25% and the Marginal Standing Facility (MSF) and Bank Rate at 5.75%. 

Indian benchmark indices held firm in trade following the policy announcement, with the Nifty index trading below 24,700 and the Sensex above 80,550, while the Nifty Bank index rose 0.5% at 10:30 am.

Growth Outlook Raised

The growth forecast for FY26 has been revised upwards, following the strong show of 7.8% growth in the April–June quarter.

Quarterly growth projections now stand at:

• Q2: 7% (from earlier 6.7%)
• Q3: 6.4% (from earlier 6.6%)
• Q4: 6.2% (from earlier 6.3%)

Growth for Q1 FY27 has also been adjusted to 6.4% from the earlier 6.6%.

Inflation Outlook Cut 

The RBI has revised its average headline inflation projection for FY26 downwards to 2.6% from the previous 3.1%, due to the impact of the GST reform and a more-than-expected decline in food prices.

The fourth bi-monthly meeting of the MPC for FY26, chaired by the RBI Governor, was held from September 29 to October 1

Central Bank’s Moves In 2025

Since February, the RBI has reduced the benchmark repurchase rate by 100 basis points to 5.5%, which includes an unexpectedly large cut in June. In its last review, the central bank had held the status quo on rates. 

MPC reviews are held bi-monthly to decide interest rates, inflation, and growth estimates. The next MPC meeting for 2025 is scheduled for December 3-5.

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