The RBI’s Monetary Policy Committee (MPC) maintained status quo on repo rate at its Oct-25 meeting, as was largely expected. As such, repo rate remained at 5.50%, with SDF and MSF at 5.25% and 5.75% respectively. The decision to hold repo rate steady was unanimous, with members also voting for maintaining the neutral policy stance. However, the latter was not unanimous, with two external members, namely - Dr. Nagesh Kumar and Prof. Ram Singh, voting for stance to be changed from neutral to accommodative.

RBI’s macroeconomic projections

The forecast for FY26 GDP growth was revised upwards by 30 bps to 6.8%.

• Quarterly forecast for Q2 FY26 was revised up by 30 bps to 7.0%
• Forecast for Q3 and Q4 of FY26 were revised lower by 20 bps and 10 bps to 6.4% and 6.2%, respectively. 
• GDP growth for Q1 FY27 was revised lower by 20 bps to at 6.4%

The FY26 CPI inflation forecast was revised lower yet again, by 50 bps to 2.6%. Recall, RBI had pruned its CPI forecast by 60 bps to 3.1% in its last policy review in Aug-25. As such, this marked the third downward adjustment in RBI’s FY26 CPI forecast

On a quarterly basis: 

• The forecast for Q2, Q3 and Q4 were all revised lower. While Q2 and Q4 estimates were revised lower by a modest 30 bps and 40 bps to 1.8% and 4.0% respectively, Q3 estimate was revised lower by a sizeable 130 bps to 1.8% now.
• Forecast for Q1 FY27 also underwent a cut to 4.5% from 4.9% earlier

Our take 

The upward revision of GDP growth forecast was somewhat unexpected, especially amidst the elevated risks from US imposed tariffs on Indian exports. To us, the upward revision to growth reflects –

• A higher-than-expected Q1 FY26 GDP growth outcome – at 7.8% vis-à-vis RBI’s expectation of 6.5%. 
• Growth remaining resilient up to Q2 FY25 – with 50% tariff impact coming on board Sep-25 onwards. 
• With timing of the GST rationalization coinciding with the onset of festive season, the positive impact on growth is likely to be seen in Q3 FY26. Having said, downward revision to H2 FY26 GDP growth reflects that the benefit from GST is likely to only partially offset the downside risks to domestic growth from elevated level of US tariffs.

The downward revision in CPI inflation was largely anticipated. The sharper than anticipated moderation in food prices on YTD basis amidst an above normal monsoon, as well as downside in prices owing to GST cuts expectedly drove the downward revision. 

Inferences and Outlook

In the last two months since the Aug-25 monetary policy, several key developments have taken shape -

• The penalty tariff of 25% over and above the reciprocal tariff of 25% kicked in from 27^th Aug-25 is likely to adversely impact exports of labour-intensive sectors, such as Textiles, Leather goods, Machinery, Shrimps, Gems and jewellery among others. While negotiations on trade front have progressed, other unexpected recent announcements, such as – 1) substantial hike in fee of new H1-B visas and, 2) additional sectoral tariffs on wood and lumber products, kitchen cabinets, heavy trucks, and branded and patented drugs, are unsettling and aggravating. 
• On the domestic front, the much-awaited GST rate rationalization has been announced and executed in a short span of less than 8 weeks. A massive restructuring of the GST architecture is likely to benefit – 1) consumers via lower prices, 2) producers – by incentivising demand and 3) overall ecosystem by enhancing the ease of doing business. This is expected to support annualised GDP growth by 50-60 bps while having a disinflationary impact of 60-70 bps. 

In a departure from its previous communique, RBI appears to be suggesting the possibility of further rate cuts. Notably -

• The MPC statement highlights that the “current macroeconomic conditions and the outlook has opened up policy space for further supporting growth”.
• Two out of six MPC members have veered towards a shift to an accommodative policy stance from neutral.
• Surprisingly, the RBI’s model-based forecast for FY27 CPI inflation continues to track 4.5% despite the cut in GST rates. We expect this to be revised lower.
• Th still unfolding developments appear to have restrained RBI’s action in Oct-25, namely – 1) Trade related uncertainties, 2) Pass through of past rate actions and 3) GST reforms that have just come into effect since 22^nd Sep-25.

In addition, the policy was heavy in regulatory announcements that seek to enhance the flow of credit, improve competitiveness of banks, create scope for higher acquisition funding and funding for infrastructure development through NBFCs. Specifically –

• The 2016 framework that limited bank lending to large corporations is proposed to be withdrawn. This should allow banks to enhance lending to large corporates.
• Create an enabling framework for Indian banks to finance acquisitions by Indian corporates.
• Reduce risk weights applicable to lending by NBFCs to operational, high quality infrastructure projects
• Publish a discussion paper on licensing of new UCBs.

Given the emphasis on regulatory credit easing in this policy, along with an indication that monetary policy easing options remain on the table, we continue to expect another 25-bps rate cut from the RBI in FY26