New Delhi– The Reserve Bank of India (RBI) is likely to maintain the policy rate unchanged in the ongoing Monetary Policy Committee (MPC) meeting, though a 25 basis points (bps) cut would come as a welcome surprise, according to Bank of Baroda economist Sonal Badhan.
Badhan suggested that while a rate cut is possible, it remains unlikely. “Even if the RBI decides to cut rates by 25 bps in October, the GDP forecast for FY26 is unlikely to be revised,” she said, explaining that monetary policy typically takes 2–3 quarters to impact the real economy.
Should the central bank choose to keep rates steady, Badhan anticipates a dovish tone in the RBI’s commentary. “We believe the RBI has limited room for further rate cuts. However, a dovish stance is likely, with an expected 50 bps reduction in the FY26 inflation projection. This alone could ease bond yields. Still, we expect the policy stance to remain ‘neutral’,” she noted.
The RBI had already front-loaded 100 bps in rate cuts earlier this year. Badhan pointed out that the effects of this move are beginning to show, particularly in lending rates. “The Weighted Average Lending Rate (WALR) for Scheduled Commercial Banks has declined by 60 bps. Recent fortnightly data also shows a slight uptick in credit growth,” she said.
Fiscal policy has also played a supporting role in bolstering domestic growth, Badhan added. “Public spending is recovering, and GST collections are strong. These factors will help sustain overall GDP momentum.”
External factors, including ongoing trade negotiations between India and the U.S., are also likely to weigh on the central bank’s decision-making. “Given the uncertainty around the trade deal, the RBI may prefer to wait for more clarity on tariffs,” Badhan said.
Domestically, she noted that the recent GST rate cut could support consumption and moderate inflation. “The RBI might want to assess the impact of these changes on festive demand and GDP growth before making any further policy moves,” she added.
In summary, while the RBI is widely expected to maintain the status quo on interest rates, Badhan concluded that a surprise 25 bps cut would be viewed positively by the markets.
RBI Governor Sanjay Malhotra is scheduled to announce the MPC’s decision on Wednesday at 10 AM.
