RBI maintains repo rate at 5.5% with a neutral stance while revising down inflation forecast to 3.1% for FY26 

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The Reserve Bank of India (RBI) announced its latest monetary policy decision on October 1, 2025, with Governor Sanjay Malhotra maintaining a status quo on key lending rates. This decision comes after the central bank had aggressively reduced rates by 100 basis points across three consecutive meetings earlier this year. Here are five crucial takeaways from the October monetary policy announcement.

Repo Rate Remains at 5.5%

The Monetary Policy Committee (MPC) has kept the repo rate unchanged at 5.5 percent, maintaining its neutral stance. This pause follows significant rate cuts totaling 100 basis points since February 2025. Consequently, the standing deposit facility rate will remain at 5.25 percent, while the marginal standing facility rate and Bank Rate will stay at 5.75 percent. The decision to maintain rates comes at a critical juncture as the RBI balances growth objectives against inflation concerns.

Growth Outlook Sustained Despite Global Headwinds

The RBI has retained its FY26 GDP growth forecast at 6.5% despite US tariffs on Indian imports. This optimistic projection demonstrates the central bank's confidence in India's economic resilience amid global uncertainties. The decision to hold rates reflects the MPC's assessment that the economy has absorbed previous rate cuts and requires stability for sustained growth momentum heading into the festive season.

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Inflation Projections Revised Downward

In a positive development, inflation for FY26 is projected at 3.1%, significantly lower than June's 3.7% estimate. This downward revision indicates that inflationary pressures have moderated considerably over recent months. The central bank has successfully managed to bring inflation closer to its target range, providing room for maintaining accommodative monetary conditions. However, the RBI expects CPI to reach 4.9% in FY27, suggesting vigilance is necessary for the medium term.

Neutral Stance Maintained

The MPC has chosen to maintain its neutral policy stance, signaling flexibility in either direction depending on economic developments. This balanced approach allows the RBI to respond swiftly to changing macroeconomic conditions while avoiding premature commitments. The neutral stance provides the central bank with adequate policy space to cut rates further if growth falters or raise them if inflation resurges.

Strategic Timing Ahead of Festive Season

The decision to keep rates unchanged comes at a strategically important time, just before India's crucial festive season. Stable interest rates provide certainty to consumers and businesses planning major purchases and investments during this peak consumption period. The unchanged rates mean that borrowers will continue to benefit from the lower EMIs resulting from earlier rate cuts, supporting consumer spending without risking inflation overshooting targets.

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Looking Ahead

The RBI's decision reflects a delicate balancing act between supporting economic growth and managing inflation expectations. With the repo rate at 5.5%, borrowers continue to enjoy relatively favorable lending conditions while the central bank maintains the flexibility to adjust policy as needed. The next MPC meetings scheduled for December 2025 and February 2026 will be crucial in determining the future trajectory of India's monetary policy as global and domestic economic conditions evolve.