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The three-day closed-door Monetary Policy Committee (MPC) meeting, which commenced on Monday (September 29, 2025), has raised hopes of a rate cut. 

The October policy comes within weeks of a cut in Goods and Services Tax (GST) and at a time when demand is likely to be created in the domestic market amid the tariff pressure. 

Analysts are divided on whether the rate fixing panel would vote for a rate cut or maintain status quo, considering the positive impact of GST cut on GDP growth and to further control inflation. 

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S&P said it forecast rate cuts of up to 75 basis points in India this fiscal. Photo: www.freepik.com

S&P Global Ratings on March 26 raised India’s growth forecast for the next financial year to 6.8%, but flagged restrictive interest rates as a dampener for economic growth.

The Indian economy is estimated to have clocked a growth of 7.6% in the current fiscal.

In November, last year, the U.S.-based agency had projected India’s growth to be 6.4% in 2024-25 fiscal on robust domestic momentum.

“For Asian emerging market [EM] economies, we generally project robust growth, with India, Indonesia, the Philippines, and Vietnam in the lead,” S&P said in its Economic Outlook for the Asia Pacific.

In largely domestic demand-led economies such as India, Japan, and Australia, the impact of higher interest rates and inflation on household spending power reduced sequential GDP growth in the second half, S&P said.

“We expect India’s real GDP growth to moderate to 6.8% in fiscal year 2025 [ending March 2025],” S&P said.

Restrictive interest rates are likely to weigh on demand next fiscal year, while regulatory actions to tame unsecured lending will affect credit growth. A lower fiscal deficit will also dampen growth, it added.

“Even as we expect a mild slowdown in Asian EM economies, we generally see solid domestic demand growth and a pick-up in exports to drive robust growth, with India, Indonesia, the Philippines and Vietnam in the lead,” S&P said.

It said high real policy rates will choke demand and are therefore likely to strengthen the case for lowering rates.

S&P said it forecast rate cuts of up to 75 basis points in India this fiscal. “In line with our projection for U.S. policy rates, we largely expect these moves to occur in the second half of the year,” it said.

In India, slowing inflation, a smaller fiscal deficit and lower U.S. policy rates will lay the ground for the Reserve Bank of India to start cutting rates. But we believe more clarity on the path of disinflation could push this decision at least to June 2024, if not later, S&P added.

Image used for representational purpose only.
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The government has raised the returns on five-year recurring deposits from 6.5% to 6.7% for the October to December 2023 quarter, but left the returns on all other Small Savings schemes unchanged.

While this constitutes the fifth successive hike in the returns on select small savings schemes, that are reset every quarter, the Public Provident Fund (PPF) rate has not been hiked since January 2019. The last time the PPF rate was tweaked, in April 2020, it was slashed from 7.9% to 7.1%.

For the July to September quarter, the government had raised interest rates on three of 12 small savings schemes by 10 to 30 basis points, with the 5-year recurring deposits raised from 6.2% to 6.5%. One basis point equals 0.01%.

The Senior Citizens Savings Scheme, the Sukanya Samriddhi Account Scheme and the National Savings Certificate (NSC) will continue to yield the highest returns among small savings instruments, at 8.2%, 8% and 7.7%, respectively.