The Reserve Bank of India’s monetary policy committee (MPC) is likely to maintain the status quo on interest rates in its October review, a Moneycontrol poll of 15 economists, bank treasury heads and fund managers has found.
The rate-setting panel is likely to draw comfort from the higher growth in the first quarter while taking time to assess the data on the Goods and Services Tax (GST) reforms, the majority of experts said.
“The space to remain on pause will be derived from comfort on growth post the Q1FY26 GDP and incoming fiscal stimulus in the form of GST cut,” said Gaura Sengupta, Economist at IDFC First Bank.
A few, however, expect the central bank to cut the key repo rate by 25 basis points (bps) amid lower inflation.
The MPC is to meet from September 29 and October 1 for its bi-monthly policy review.
Since February, the MPC has reduced the repo rate by 100 bps to aid growth, with a 25 bps cut in February and April and 50 bps in June.
The central bank will stick to its “neutral” stance and keep its tone dovish in the upcoming policy, experts said. This tone is targeted at lowering interest rates to increase spending and lending, as well as giving a boost to growth.
On September 16, Moneycontrol reported that bankers have ruled out a rate cut in October but do expect one reduction in the current fiscal.
Inflation projection
Most economists and experts are of the view that the RBI will revise down Consumer Price Index (CPI) inflation projections, taking comfort from GST reforms.
“CPI Inflation will be projected 10 bps lower,” said Anshul Chandak, head of treasury at RBL Bank.
Gopal Tripathi, head of treasury at Jana Small Finance Bank, expects the projection to be 20-30 bps lower.
India's retail inflation rose marginally to 2.07 percent in August, breaking a 10-month cooling trend, although food inflation remained in negative territory for the third consecutive month.
Despite the uptick, inflation remained below 3 percent for the fourth straight month, rising from an eight-year low of 1.61 percent in July. Economists indicate that the number is unlikely to force the central bank to initiate another rate cut.
In its August review, the Reserve Bank revised the CPI inflation projection for FY26 to 3.1 percent from 3.7 percent.
It expects Q2 inflation at 2.1 percent, Q3 at 3.1 percent and Q4 at 4.4 percent. Inflation for Q1 for FY27 is projected at 4.9 percent.
GDP growth
Most experts don’t expect the RBI to revise growth projections, as tariff uncertainty and the H-1B visa fee may offset the demand boost from GST reforms.
"Tariffs and H-1 visa damage will compensate for the demand boost from GST," said Murthy Nagarajan, head-fixed income, Tata Asset Management.
GST reforms will act as a cushion against tariff-related uncertainties and should the US ease its levies, the tailwind, along with the Centre's fiscal support and easier monetary conditions, could lift confidence across the manufacturing supply chain.
India's economy grew 7.8 percent in the June quarter, its fastest pace in five quarters, beating estimates.
Gross domestic product topped both the RBI's 6.5 percent projection and the 6.6 percent median in a Moneycontrol poll. Growth was also stronger than the 7.4 percent rate in the preceding three months ended March 31, and 6.5 percent was recorded a year earlier.
On September 22, chief economic adviser Anantha Nageswaran said India's FY26 GDP growth will tend towards the upper end of the 6.3-6.8 percent range on the back of GST 2.0.
The RBI in August projected FY26 real GDP growth at 6.5 percent; Q1 at 6.5 percent, Q2 at 6.7 percent, Q3 at 6.6 percent, and Q4 at 6.3 percent. Real GDP growth for the first quarter FY27 is pegged at be 6.6 percent.
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