RBI maintains repo rate at 5.5%, keeps door open for December cut

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) unanimously decided to keep the policy repo rate unchanged at 5.5 per cent for the second consecutive meeting, while maintaining a neutral stance, though two external members expressed a preference for an accommodative approach. 

The MPC has discontinued the practice of voting on stance as it is not mandated by the law. 

The central bank has lowered its inflation projection for FY26 to 2.6 per cent from 3.1 per cent, and for the first quarter of the next financial year to 4.5 per cent from 4.9 per cent. 

The economic growth projection for the full year has been revised upward to 6.8 per cent from its August forecast of 6.5 per cent, reflecting stronger-than-expected Q1 GDP growth of 7.8 per cent. The forecast for the second half, however, has been trimmed by 15 basis points to 6.3 per cent. 

RBI Governor Sanjay Malhotra said the MPC had observed a significant moderation in inflation but warned that “prevailing global uncertainties and tariff-related developments are likely to decelerate growth in H2FY26, and beyond. The current macroeconomic conditions and outlook have opened up policy space for further supporting growth.” 

The markets noted the change in language from the June meeting, when the RBI had referred to “limited policy space” after cutting the rate by 50 basis points, to Wednesday’s statement, which mentioned simply “policy space.” 

Economists at Goldman Sachs interpreted the move as signalling a “dovish pause,” writing: “The governor’s dovi­sh tone and lower inflation projections point to a dovish pause, in line with our view, paving the way for a further 25 basis point rate cut in December, taking the repo rate to 5.25 per cent in our baseline scenario.” 

The bond market responded positively, with the yield on the benchmark government bond falling six basis points to close the day at 6.52 per cent. 

Malhotra said it was prudent to wait for the impact of previous policy actions to materialise and for greater clarity to emerge before determining the next steps. He noted that the weighted average lending rate (WALR) of scheduled commercial banks had moderated by 58 basis points for fresh rupee loans between February and August, during which the policy repo rate was cut by 100 basis points. On the deposit side, the weighted average domestic term deposit rate (WADTDR) on fresh deposits declined by 106 basis points.  

 

“Transmission has been broad-based across sectors. Going forward, adequate liquidity in the system and the remaining CRR (cash reserve ratio) cuts will further facilitate monetary transmission,” Malhotra said.

 

The RBI highlighted that the rationalisation of goods and services tax (GST) rates, effective from September 22, is likely to temper inflation while stimulating consumption and growth. “Overall, the inflation outcome is likely to be softer than what was projected in August, primarily on account of the GST rate cuts and benign food prices,” the central bank governor said.

 

Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, observed: “The RBI has kept the door ajar for future rate cuts with seemingly low inflation forecasts and downward adjustments in growth, though the timing of such moves could keep everyone guessing.”

 

The two external members who wished to change the stance to accommodative were Ram Singh and Nagesh Kumar.

 

The next review of the policy is scheduled for December 3-5.