RBI MPC Expected to Hold Rates Steady in October Policy Review

According to a report released on 25 September, the Reserve Bank of India’s monetary policy committee (MPC) is expected to keep the repo rate at its current level in its October review, taking into account the favourable effects of the GST reforms on demand, the stronger-than-expected Q1 FY26 GDP growth, and an inflation trajectory that is predicted to slope upwards after that.

Because of the rationalisation of the GST, the inflation trajectory remained lower (the average for FY2026 is currently 2.6%). According to ICRA’s analysis, the transmission of the previous 100 bps rate drop is considered to be muted for outstanding deposits (-18 bps) but practically complete for fresh deposits (-94 bps).

What Report Further Stated?

The weighted average lending rate also decreased by 60 basis points for new loans, while it eased by 42 basis points for existing loans. It is believed that there won’t be any more notable transmission to loan rates in the upcoming months.

The analysis predicts that the yield curve will continue to be steep and that the 10-year G-sec yield for the government bond market will trade between 6.40 and 6.60%. This is because long-term yields stay sticky due to demand-supply dynamics and fiscal concerns, while short-term rates are kept stable by easy liquidity.

According to the paper, after a US Fed rate drop, the gap between the 10Y India G-sec and the 10Y US Treasury yield widened considerably, from 209 bps at the end of June 2025 to 236 bps in September 2025. Due to advance tax outflows, the systemic liquidity surplus declined in September 2025 after being significant in June and August of that year.

Good News Ahead of Festive Season

The report added that G-sec redemptions (INR 1.0 trillion) in early November 2025 and a 75 bps CRR drop that is still due during October–November 2025 are anticipated to improve liquidity and counteract the strain of currency leakage during the festive season. Variable Rate Repos (VRRs) may be maintained by the RBI to control sporadic tightness.

In comparison to previous projections, the research projects that GST rationalisation will reduce headline CPI inflation by 25–50 basis points between Q3 FY2026 and Q2 FY2027. “Average CPI inflation for FY2026 is now projected at around 2.6% (against 3.0% earlier),” said the report.