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.

According to Investment Information and Credit Rating Agency (ICRA), the MPC is likely to maintain status quo on the repo rate. This view is supported by the positive impact of GST reforms on demand, stronger-than-expected Q1 FY 2026 GDP growth, and an inflation trajectory that, while lowered due to GST rationalisation (FY2026 average now 2.6%), is expected to slope upwards thereafter.

“In ICRA’s view, the GST rationalisation could dampen the headline Consumer Price Index (CPI) prints by 25-50 basis points (bps) during Q3 FY2026-Q2 FY2027 relative to our pre-GST rationalisation estimates, taking the average for FY2026 to 2.6%,” said Aditi Nayar, Chief Economist, ICRA Ltd.

“While October-November 2025 may mark a fresh low for the CPI inflation, the trajectory subsequently remains upward sloping. GST rationalisation is unambiguously set to moderate inflation,” she said.

“However, this is the outcome of a policy change and will likely be accompanied by stronger demand. This suggests a status quo for the repo rate in the October 2025 policy review, in what appears to be a close call,” she added.

“While we do believe that there is limited scope for any change in the repo rate in this policy, there is a market view that given the current environment, a rate cut would be warranted,” said Madan Sabnavis, Chief Economist, Bank of Baroda.

“As inflation is anyway well below the target of 4% both before and after GST 2.0, this cannot be a primary consideration. In fact, in Q1-FY27, inflation would be in the region of 4.3-4.4% and average 4-4.5% for the year which means that the real rate would be between 1-1.5% which is in accordance with this thumb rule,” he said.

“Also, growth is expected to steady and be upwards of 6.5% for the year and hence there is no imminent threat to this number even after taking into account the tariff effect. Under these conditions we expect a status quo,” he added.

According to him a change of stance could probably be considered to assuage sentiment and bond yields. “If at all at a later point of time there is a package for exporters against the backdrop of tariffs, a rate cut could be considered. We expect RBI to also revise downwards the inflation forecast but leave the GDP unchanged,” he said.

Barclays said the MPC would go for a 25 bps cut in October, alongside a ‘neutral’ stance.

“After a neutral pause in August, we see the RBI MPC cutting policy repo rate by 25 bps in the upcoming 1 October meeting, acknowledging that this is a close call versus a dovish pause, and deferring the cut to December,” the British bank said in a note.

“Our base case for an October cut is premised on comfort over inflation, which allows further monetary easing. The recent tightening of financial conditions and the tariff overhang clouding the growth outlook in the 12 – month ahead period are also reasons for a forward – looking central bank to cut rates,” it said.

“The tightening of financial conditions is also hindering transmission of policy easing to financial markets and bank lending rates. As for the stance, we expect the RBI MPC to retain it as ‘neutral’,” it added.

Master Capital Services Ltd. said, “Going by the aggressive rate cuts seen in the recent past, expectations for the coming RBI MPC meet are likely to be crafted in favour of policy stability rather than an immediate rate cut.”

“The headline inflation while slipping below the RBI’s 4% target band, is being seen as a temporary phenomenon, courtesy a sharp fall in vegetable prices, rather than a structural one. Also, considering global tariff moves and trade uncertainties also at play, the central bank may prefer to remain cautious for now,” the firm said.

“With interest rate cuts used as a stimulus tool on the domestic front through GST rationalisation, it provides RBI space to watch and assess the impact before considering fresh cuts,” it added.

Jyoti Prakash Gadia- Managing Director, Resurgent India (A SEBI Registered CAT 1 Merchant bank) said, “The inflation is under control, and there is likely a further reduction in prices with the recent major cut in GST rates on consumer products. This leads to a benign outlook on inflation, making a case for a rate cut of at least 25 bps at this stage.”

“The uncertainties caused by the tariff hike by the USA are likely to impact our experts’ performance, making a dent in GDP growth rates. This calls for a timely action to neutralise the negative impact and put extra emphasis on growth,” it added.

“The need for seizing this opportunity to support growth and likely favourable trends in prices is expected to weigh in favour of a rate cut by 25 bps,” it emphasised.

Published – September 29, 2025 11:10 pm IST