Mumbai: The Reserve Bank of India’s monetary policy committee (MPC), led by Governor Sanjay Malhotra, will announce its interest rate decision on October 1, and it’s shaping up to be a tough call. While most economists expect the repo rate to stay unchanged at 5.5 percent, a significant number still believe a 0.25 percent rate cut is possible, especially given India’s weakening growth due to rising U.S. tariffs.
Why the Pressure to Cut Rates?
Inflation in India is well within the RBI’s comfort zone of 2 percent to 6 percent. In fact, recent tax cuts and a good monsoon have helped keep prices low. August inflation was just 2.07 percent, and for the year, it could average around 2.7 percent. These numbers give the RBI some space to reduce borrowing costs to support growth.
However, the Indian rupee is at a record low, and cutting rates too soon might make the currency fall further. That’s one big reason the RBI may wait until December before making another move.
Growth Worries Mounting
India’s economy is expected to grow around 6.5 percent this year, but there are risks. President Trump’s 100 percent export tariffs could hurt Indian businesses, especially exporters. Some economists say a small rate cut now could help cushion the impact. Still, the RBI might prefer to stay cautious, especially after already cutting rates by 100 basis points this year.
Markets Watching Closely
Bond markets are nervous. Investors have seen mixed signals from the RBI in recent months — a shift to a neutral policy in June, followed by no action in August, despite low inflation. Yields on 10-year bonds have risen by 30 basis points since June, showing how uncertain the market is.
All eyes will be on Malhotra’s 10 a.m. speech in Mumbai to see if a surprise rate cut is coming or if the RBI chooses to wait a bit longer.
