RBI Signals Caution: Policy Rate Paused as Deputy Governor Highlights Limited Impact of Further Cuts

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The Reserve Bank of India kept policy rates steady, emphasizing ongoing transmission of previous cuts and limited marginal effectiveness of further reductions. RBI Governor Sanjay Malhotra underscored a benign inflation outlook and softer growth expectations, preferring to maintain growth-enabling conditions while monitoring global uncertainties and tariff pressures.

The Reserve Bank of India’s Monetary Policy Committee (MPC) decided to maintain the key policy rate unchanged, signaling a cautious stance in navigating the evolving macroeconomic landscape. Deputy Governor Gupta noted that past interest rate cuts from earlier in 2025 are still being transmitted through the economy, reducing the immediate impact of further reductions if implemented now.

Governor Sanjay Malhotra conveyed that although India’s growth remains robust by current measurements, the future outlook is softer and below aspirational levels. Importantly, the RBI foresees global uncertainties—such as trade tariffs and geopolitical tensions—dampening growth momentum in the second half of the fiscal year and beyond.

Despite having monetary policy space to ease rates further, the governor stressed that the timing is not opportune since such moves would yield only marginal benefits without bringing the desired impact. Instead, the central bank’s strategy centers on facilitating “growth-enabling conditions” by supporting economic activity while safeguarding inflation targets.

On inflation, the outlook remains benign with headline Consumer Price Index (CPI) inflation forecast lowered to 2.6% for FY2025-26, well within the RBI’s target range. Core inflation trends provide additional room for policy accommodation. However, MPC member Bhattacharya highlighted that moderation in inflation alone is not a strong enough reason to cut policy rates at present.

The RBI maintains a “neutral” policy stance, ensuring flexibility to respond to changing economic signals. The central bank continues to monitor global trade developments as impacts from U.S. tariffs and tariff-related uncertainties could slow export growth and affect domestic demand.

Key Highlights

Policy rate held steady; previous cuts still delivering effects.
Governor notes robust but softer growth outlook below institutional aspirations.
Inflation forecast revised lower to 2.6%, providing policy space.
Global uncertainties, especially tariffs, seen as growth headwinds H2 FY26 and beyond.
RBI adopts cautious “neutral” stance, prioritizing sustainable growth support.
MPC member Bhattacharya advises against immediate rate cuts despite inflation moderation.
Emphasis on structural and fiscal measures to supplement monetary policy.

Sources: RBI Monetary Policy Statement October 2025; Economic Times; Financial Express; Trading Economics

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