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Key Points

The RBI has kept interest rates steady but signaled potential for future cuts as economic conditions improve. Inflation projections have been significantly lowered while growth forecasts have been upgraded, creating room for policy easing. Bank of Baroda economists expect the central bank to eventually cut rates to 5.25% depending on how growth and inflation trends evolve. The policy also included several regulatory changes aimed at improving credit flow and strengthening the financial system.

Key Points: RBI Policy Signals Possible 25bps Rate Cut Says BoB

  • RBI maintains repo rate at 5.5% with neutral stance amid global uncertainties
  • Bank of Baroda expects terminal repo rate to reach 5.25% in coming months
  • Central bank revises FY26 growth upward to 6.8% from previous 6.5% estimate
  • Inflation projection slashed to 2.6% for FY26 citing food price moderation
  • Two MPC members favored shifting policy stance toward accommodative position
  • RBI introduces regulatory changes including ECL framework from April 2027
3 min read

RBI Policy opens up the possibility of another rate cut of 25bps: BoB

RBI holds rates but opens door for 25bps cut as inflation falls to 2.6% and growth outlook improves. Bank of Baroda sees terminal repo rate at 5.25%.

"The current macroeconomic conditions and outlook have created space for further policy easing to support growth - RBI Policy Statement"

New Delhi, October 1

The Reserve Bank of India's (RBI) Governors' monetary policy statement made on Wednesday has opened up the possibility of another 25 basis points (bps) rate cut, even as the central bank decided to maintain the status quo on key rates and retain a neutral stance, noted a report by Bank of Baroda.

According to the policy statement, the current macroeconomic conditions and outlook have created space for further policy easing to support growth.

Economists at Bank of Baroda expect the terminal repo rate at 5.25 per cent, with the timing of the next rate cut likely to depend on evolving growth and inflation trends.

The Monetary Policy Committee (MPC) unanimously voted to keep the repo rate unchanged at 5.5 per cent, assessing the combined impact of recent tariff changes and GST rationalisation on growth.

The stance of the policy was retained as neutral, though two members favoured a shift towards an accommodative tone.

The RBI revised its growth projection for FY26 upwards to 6.8 per cent from 6.5 per cent estimated in August policy statement, reflecting a stronger first half even as the second half is expected to moderate. For Q2 FY26, GDP growth has been marked up by 30 bps, while projections for Q3 and Q4 have been trimmed slightly.

At the same time, the central bank has significantly revised down its inflation projections to 2.6 per cent for FY26 from 3.1 per cent announced in August, citing moderation in food inflation, a healthy kharif output, and comfortable reservoir levels.

Inflation for Q3FY26 is now seen at 1.8 per cent, compared with the previous estimate of 3.1 per cent.

RBI Governor noted that domestic fundamentals continue to remain robust, but external headwinds could pose downside risks to growth. The recent GST structure revision is expected to cushion some of the adverse impacts of trade-related disruptions.

The banking system continues to remain well-capitalised with strong asset quality and profitability, even as bank credit growth has moderated due to increased reliance on non-bank financing channels.

The policy also featured a slew of regulatory announcements aimed at improving credit flow and compliance. The Expected Credit Loss (ECL) framework will take effect from April 2027, with a glide path till March 2031, while revised Basel III norms will be implemented by April 2027, lowering risk weights on MSME and real estate exposures.

Additionally, the RBI proposed a risk-based deposit insurance framework and allowed banks to lend in Indian rupee to resident borrowers in Nepal, Bhutan, and Sri Lanka, a move expected to enhance rupee usage in cross-border transactions.

Overall, while maintaining a cautious stance amid evolving global and domestic conditions, the central bank's dovish commentary signals room for a calibrated 25 bps rate cut in the near term to support growth, given benign inflation and comfortable liquidity conditions.

- ANI

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Reader Comments

R
Rohit P
Finally some relief for home loan borrowers! Been waiting for rates to come down. The 25bps cut will make a significant difference in my EMI. Good move by RBI to support growth while keeping inflation under control.
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Sarah B
While the rate cut possibility is welcome, I'm concerned about the external headwinds mentioned. The global economic situation remains volatile. RBI should be careful not to cut rates too aggressively.
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Aditya G
The upward revision in GDP growth to 6.8% shows our economy is resilient despite global challenges. The regulatory changes for MSMEs and real estate are much needed. Jai Hind! 🇮🇳
M
Michael C
Interesting to see inflation projections revised down to 2.6%. This gives RBI ample room to support growth. The move to allow rupee lending in neighboring countries is strategic for regional economic integration.
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Nisha Z
As a retired person depending on fixed deposits, I hope RBI balances growth support with savers' interests. The current FD rates are already quite low. Need to protect senior citizens' income too.
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Karthik V
The ECL framework implementation from 2027 is a progressive step. Will help banks better manage risks. Overall, a balanced policy that addresses both growth and stability concerns. Well done RBI! 👍

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