Economic Outlook & Macro Trends

Dovish pause keeps door open for a final rate cut predicated on growth-inflation outcomes

Thematic Report 01 Oct 2025

In line with ICRA’s expectations, the MPC unanimously kept the repo rate unchanged at 5.5% in October 2025. The FY2026 CPI inflation forecast was expectedly pared by 50 bps to 2.6%, while the GDP growth projection was raised by 30 bps to 6.8%. A final 25 bps rate cut is possible in December 2025 or February 2026; the timing of the same remains dependent on transmission of rate cuts and growth implications of GST rejig and tariffs.

The Monetary Policy Committee (MPC) unanimously kept the repo rate unchanged at 5.5% in the October 2025 policy review, in line with ICRA’s expectation. Additionally, it decided to maintain the monetary policy stance at neutral, albeit with a majority of 4:2 members. The tone of the policy was quite dovish, with the statement clearly articulating that the current macroeconomic conditions and outlook have opened up policy space for further supporting growth. Moreover, the Committee pared its CPI inflation projection by a sizeable 50 bps to 2.6% (in line with ICRA's forecast), citing benign food prices as well as the positive impact of the GST rationalisation. Simultaneously, it raised its GDP growth forecast by 30 bps to 6.8%, partly owing to the higher-than-expected Q1 growth print, even as the estimated trajectory beyond Q2 has been reduced by 10-20 bps. Given the benign tone of the policy document and signals in favour of further easing, ICRA believes that the window remains ajar for a final 25 bps rate cut either in December 2025 or February 2026 meeting. The exact timing of the same would be contingent on two key factors – the degree of further transmission of the cumulative 100 bps rate cuts to the credit market and the growth impact of the GST rate rationalisation and the downside emerging from elevated tariffs.

  • In the fourth bi-monthly monetary policy for FY2026, the MPC unanimously maintained status quo, keeping the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 5.50% in October 2025, for the second consecutive meeting, in line with ICRA’s expectations. Consequently, the standing deposit facility (SDF) rate was held at 5.25%, and the marginal standing facility (MSF) rate and the Bank Rate at 5.75% each. Additionally, it decided to continue with the neutral monetary policy stance, albeit with a vote of 4:2.

EXHIBIT 1: Movement in Key Rates

Source: RBI; CEIC; ICRA Research

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