The Reserve Bank of India (RBI) is keeping the option for future interest rate reductions open, as its monetary policy committee (MPC) has significantly lowered its inflation forecasts, according to a recent Crisil Intelligence report. On October 1, the central bank maintained its policy interest rate at 5.5 percent for the second consecutive time, citing uncertainties related to tariffs. The report indicated that the MPC recognized potential downside risks to GDP growth in the second half of the current financial year (2025-26) because of the effects of US tariffs. However, the recent adjustments in GST rates are expected to mitigate some of this impact, according to Crisil Intelligence.
The report emphasized that certain labor-intensive sectors are particularly susceptible to US tariff impacts and will require policy support. With inflation being less of a concern this fiscal year, the anticipated rate cuts by the US Federal Reserve could create room for the RBI to lower rates. Since February 2025, the RBI has decreased the policy rate by 100 basis points. In its prior policy review in June, it reduced the repo rate by 50 basis points to 5.5 percent. The government has instructed the central bank to maintain the Consumer Price Index (CPI)-based retail inflation at around 4 percent, allowing for a 2 percent variance.
Following the MPC’s recommendations, the RBI lowered the repo rate by 25 basis points in February and April, and by 50 basis points in June, as retail inflation has eased.
