RBI surprises by holding rates, signals steady hand
The Reserve Bank of India (RBI) on Wednesday decided to keep the repo rate unchanged, even as it struck a confident note on the country’s economic outlook. The Monetary Policy Committee (MPC), after a three-day review ending October 1, 2025, maintained the benchmark repo rate at 6.50%.
While the move was widely expected, what caught attention was the RBI’s decision to revise India’s GDP growth forecast for 2025-26 to 6.8%, up from its earlier estimate of 6.5%. This revision comes despite sticky inflation, volatile crude prices, and global financial uncertainty.
Governor Shaktikanta Das, addressing the press, called the decision “a balancing act between sustaining growth momentum and ensuring inflation remains within tolerance.”
Why RBI chose a pause
For months now, economists have speculated whether the central bank would resume rate hikes to tame inflation or pivot towards easing to fuel investment. Instead, the RBI chose the middle path—holding rates steady.
“The Indian economy has shown remarkable resilience. Investment demand is robust, manufacturing is seeing momentum, and services remain strong,” Das explained.
At the same time, inflation remains above the comfort level, largely due to food and fuel prices. “We cannot afford complacency. The MPC remains watchful of upside risks,” he added.
In simpler terms, the RBI doesn’t want to choke growth by raising rates, nor risk inflation spiraling by cutting them.
Growth forecast raised to 6.8%
The most upbeat announcement of the day was the upward revision of GDP growth. The RBI now expects the economy to expand at 6.8% in 2025-26, a pace that would make India one of the fastest-growing large economies.
“This upward revision is a confidence booster,” said Anjali Mehra, an economist at a Mumbai-based brokerage. “It suggests the RBI believes domestic demand and investment will offset global headwinds.”
Exports, too, are expected to pick up with global trade showing signs of recovery. Coupled with strong domestic consumption, this sets the stage for an upbeat year ahead.
Inflation: still a thorn in the side
Despite optimism, inflation continues to be a major concern. The latest data shows consumer price inflation hovering near 5.6%, uncomfortably close to the upper band of the RBI’s tolerance range (2-6%).
“Food prices remain volatile, particularly cereals and vegetables. Global oil prices are another wildcard,” Das warned.
The RBI maintained its inflation projection for FY 2025-26 at 4.9%, indicating it expects gradual easing over the coming quarters.
Analysts, however, caution that if crude oil crosses $100 a barrel again or if monsoon rains disappoint, inflation could shoot up, forcing the RBI’s hand.
Market reaction: cautious optimism
The stock market welcomed the decision, with benchmark indices posting modest gains. Bank stocks rose, as stable rates signal relief for lenders and borrowers alike. Bond yields, however, were little changed, suggesting investors remain cautious about future inflation risks.
“The RBI’s stance is growth-positive, but inflation is still the elephant in the room,” said market analyst Rohit Sinha. “Investors will closely track oil and food prices in the coming months.”
What it means for borrowers and businesses
For ordinary borrowers, the RBI’s pause is good news. Home loan and personal loan EMIs are unlikely to rise in the near term. Businesses, too, can breathe easier knowing that borrowing costs remain stable.
At the same time, depositors may feel disappointed as interest rates on savings and fixed deposits are unlikely to move higher.
But experts stress that RBI’s cautious optimism is better than aggressive tightening, which could have hurt jobs and consumption.
A tightrope walk ahead
The RBI’s October policy highlights the delicate balancing act central banks face worldwide. On one hand, growth momentum looks strong, and India’s economy is firing on multiple cylinders. On the other, inflation risks loom large, and global uncertainty—from oil shocks to geopolitical tensions—can quickly change the picture.
“The RBI has chosen to wait and watch. If inflation eases as expected, rate cuts could be on the table next year,” said economist Saurabh Jain. “But if things turn volatile, another hike is not off the cards.”
The bigger picture
What stands out is the confidence with which the RBI upgraded its growth forecast. The message is clear: India’s economic fundamentals are strong. Investments in infrastructure, rising digital adoption, and a robust services sector are all driving momentum.
At the same time, the RBI isn’t taking its eyes off inflation. The next few months will be critical in determining whether price pressures ease or persist.
For now, India remains on a promising path. The RBI’s steady hand gives both markets and households a sense of stability, while its growth optimism provides a ray of hope in uncertain global times.