The Reserve Bank of India (RBI) is expected to maintain the policy rate unchanged in the current Monetary Policy Committee (MPC) meeting, with a rate cut of 25 basis points (bps) being seen as a positive surprise, according to Bank of Baroda Economist Sonal Badhan.
Speaking on the possible impact of such a move with ANI, Badhan noted that even if the RBI goes ahead with a 25 bps cut in October, the GDP forecast for FY26 is unlikely to see any revision. “Even if RBI decides to cut rate by 25bps, GDP forecast for FY26 is likely to remain unchanged as changes to monetary policy usually takes 2-3 quarters to show it’s impact on the real economy” she said.
On the central bank’s likely stance if it holds rates steady, Badhan highlighted that the commentary could lean dovish. “We believe that considering RBI has limited room to cut rates, it is more likely that the commentary will be dovish with approx. 50bps reduction in RBI’s FY26 inflation projection. This in itself will provide relief to bond yields. However, stance is likely to be kept unchanged at ‘neutral'” she added.
The RBI has already frontloaded a 100 bps cut earlier this year, and according to Badhan, the impact of this move is gradually transmitting into the economy. “RBI’s front loading of 100bps cut has shown impact on lending rates. WALR for SCBs is down by 60bps. Latest fortnightly data shows marginal recovery in credit growth. Along with lower rates, fiscal policy is also aiding domestic growth. Revival in public spending and GST boost will also help keep overall GDP growth intact,” she explained.
External and domestic pressures are also expected to influence RBI’s policy decision. With the U.S. still negotiating a trade deal with India, Badhan said the central bank may prefer to wait before acting. “Given that US and India are still negotiating a trade deal, it is likely that RBI will maintain status quo until it gets more clarity on tariffs. Domestically, as GST cut will be supportive of consumption demand and inflation, RBI will hold rates to see the impact of this on festive demand and GDP growth,” she said.
Overall, Badhan emphasized that the central bank has all the reasons to hold policy rates steady at this stage, but a 25 bps rate cut would be seen as a welcome positive surprise. RBI Governor Sanjay Malhotra will announce the outcome of the meeting on Wednesday at 10 AM.
