By Rozebud Gonsalves
Copyright indiatimes
A significant majority of economists polled by ET expect the Reserve Bank of India (RBI) to keep policy rates unchanged next week despite ostensible headroom to slash rates further, with decision makers seeking to retain options of backloading cuts due to potential growth challenges spawned by US tariffs. Of the 22 economists polled, 14 believe that the monetary policy committee (MPC) to maintain the repo rate at 5.50% at the October 1 meeting. Dhiraj Nim, economist at ANZ Bank, who had predicted a rate cut in the August policy, now expects the rate to remain unchanged in the aftermath of the biggest cuts in goods and services tax (GST). The new two-tier and sharply reduced tax regime took effect September 22.“The slowdown that was expected in H2 is still not very visible and we still don’t know about the impact of GST cuts and how sharp of a slowdown it is. So, why waste the bullet right away? We can wait and see if a slowdown has happened and then can cut at a later stage because inflation would still allow for that,” Nim told ET. Live EventsNim represents those ‘status quoist’ economists who believe that while consumer inflation is expected to ease further, a part of the decline would be because of the impact of recent goods and services tax (GST) rate cuts rather than a broad-based demand slowdown. Moreover, inflation is projected to rise above the RBI’s 4% mediumterm target in the first half of 2026.The growth outlook remains mixed supported by GST cuts but clouded by uncertainty around higher US tariffs. Given these risks, maintaining policy space may be prudent, they say.On the other hand, those favouring a rate cut argue that, as a forward-looking central bank, the RBI should take comfort in easing inflation and act proactively by reducing policy rates. Retail inflation has been below the RBI’s 4% target for the seventh consecutive month in August at 2.7%. The economy expanded faster than expected at 7.8% in the April-June quarter.Inflation dynamics Pranjul Bhandari, chief India economist at HSBC, believes that it will be a ‘dovish’ hold call, with the RBI discussing the low sequential momentum in inflation more actively. She expects a 25-basis-point rate cut in December if the 50% tariff remains. “The GST and Diwali festival-led consumption boost would be over by then and the trade drag will start showing up more,” she said. RBI Governor Sanjay Malhotra will announce the decision of the sixmember rate-setting committee after a three-day meeting that concludes on Wednesday, October 1. In the last policy in August, the MPC had kept rates unchanged after having reduced it by a total of 100 bps between February and June.Along with the October policy review assessment, the RBI will also publish its bi-annual Monetary Policy Report, giving short-term and long-term forecasts on growth and inflation. Most economists expect the central bank to lower its FY26 Consumer Price Index-based inflation projection of 3.1%, while retaining the GDP growth forecast of 6.5%.Add as a Reliable and Trusted News Source Add Now!
Aastha Gudwani and Amruta Ghare, economists at Barclays, expect average FY26 CPI inflation of 2.4%, creating room for further easing. Their base case of 25 bps cut in repo rate next week is premised on comfort over inflation.(You can now subscribe to our Economic Times WhatsApp channel)
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(You can now subscribe to our Economic Times WhatsApp channel)Read More News onRBI policy ratesGST rate cutsUS tariffs impactinflation forecastANZ Bankeconomic uncertaintyHSBCreserve bank of india(Catch all the Business News, Breaking News, Budget 2025 Events and Latest News Updates on The Economic Times.) Subscribe to The Economic Times Prime and read the ET ePaper online….moreless
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