For the first time in recent months, opinion appears to be divided on whether the Reserve Bank of India (RBI) will cut interest rates or keep them on hold after the monetary policy meeting, which ends on October 1.
Benign inflation could push the central bank to lower interest rates by a further 25 basis points, as also concerns over growth (despite the June-ended GDP growth of 7.8 percent—a high quarter high). But the reality is that the impact of the current trade tariff is yet to be seen as is the positivity of the recent GST cuts on festival consumption demand. A section of experts is suggesting that it would be more prudent for the RBI to wait and watch for a while longer.
The RBI had lowered interest rates between February and June to 5.50 percent. Rates were kept unchanged at its August 6 monetary policy meeting, while maintaining a neutral stance.
Anubhuti Sahay, head, India Economic Research at Standard Chartered Bank, said it would be more prudent for the RBI to wait a while longer before cutting rates. “We need more clarity on the percentage of GST passed on to customers, besides also whether the impact of the cuts is leading to position growth. We also need to see if there are any signals emerging on any fiscal strain to any state government.”
She said that if a higher than expected 50 basis point rate cut is introduced now, in an uncertain global economic environment, it would be better that the ammunition to deal with it is used judiciously and not in a hurry.
Sakshi Gupta, principal economist at HDFC Bank, is of the view that the RBI would hold rates at the moment until “there is more clarity on the impact of the trade tariffs” imposed on India and also the impact of the GST cuts on consumption demand in the ongoing festive season.
Also read: RBI keeps GDP growth forecast unchanged despite Trump tariff storm
“I am not expecting a stance change or a rate cut or the macro forecast for growth and inflation,” she says. The Bank will also want to wait and see the strength of the consumption boost from the GST cuts,” she said. From September 22, the government has revamped rates for good and products, including automobiles, equipment and kitchen staples, in several cases lowering them.
Deepak Agrawal, chief investment officer (debt) at Kotak Mahindra AMC, said the RBI's tone was “seen as hawkish in its last policy, however, since then the market dynamics have changed”.
He said that while the market expectation on the upcoming policy is mixed, the recent tighter financial conditions caused by domestic and global factors, and the pending India-US trade deal, the RBI's decision to hold the rate with a softer guidance will be positively seen by the market.
Madhvi Arora, chief economist for Emkay Global, says the RBI may “adopt an open-ended policy approach for more easing ahead”. “Notwithstanding the ‘done for now’ RBI guidance and possibility of our rate-cut call misfiring in the October policy, we re-emphasise that what the June MPC meeting taught us was that macro resets evidently need front-loaded policy action than a back-loaded one,” she says.
The near-term visibility on inflation opens space for more easing, especially as the real policy rate based on average FY26 inflation could exceed 3 percent. Arora argues that, in such a context, focusing on one-year-ahead expected inflation appears increasingly misplaced in an evolving world.
An SBI research report says there is merit in a further rate cut because retail inflation is expected to remain benign even in the next financial year.
First Published: Sep 30, 2025, 18:06
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