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RBI Holds Repo Rate at 5.5%, Keeps Neutral Stance
The RBI has kept the repo rate unchanged at 5.5% with a neutral stance, citing tariff-related risks, even as inflation eased to a six-year low of 2.07% in August.
Author: Kanal English Desk
Published: October 1, 2025
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The Reserve Bank of India (RBI) has decided to leave its key policy interest rate, the repo rate, unchanged at 5.5 per cent. The decision was taken by the Monetary Policy Committee (MPC) in its meeting on 1 October 2025, marking the second consecutive pause after a series of rate cuts earlier this year; Business Line reported.
Why Did RBI Pause?
Announcing the policy, RBI Governor Sanjay Malhotra explained that while inflation has fallen to very low levels, concerns remain about tariff-related uncertainties and their possible impact on economic growth in the coming months.
The Governor pointed out that:
- The recent GST rate rationalisation may dampen consumption and slow overall growth.
- Tariff developments could weigh on the pace of expansion in the second half of the financial year.
Because of these risks, the MPC chose to wait and watch instead of cutting rates further.
Inflation at a Six-Year Low
Retail inflation, measured by the Consumer Price Index (CPI), has remained well below the RBI’s medium-term target of 4 per cent since February 2025. In August, inflation fell to just 2.07 per cent, the lowest level in six years. This was mainly due to falling food prices and a favourable base effect.
Encouraged by this trend, the RBI has lowered its inflation forecasts once again:
- Average inflation for the year 2025-26 is now projected at 2.6%, compared with 3.7% in June and 3.1% in August.
- For Q4 of 2025-26 and Q1 of 2026-27, inflation is expected to stay aligned with the 4 per cent target band.
- Core inflation is also expected to remain contained.
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Rate Cuts Already Done in 2025
Since the beginning of 2025, the RBI has already cut rates by a total of 100 basis points to support growth:
- 25 bps in February
- 25 bps in April
- 50 bps in June
These steps brought the repo rate down from 6.5 per cent to the current 5.5 per cent.
Divided Views Among Analysts
Market analysts were split before the policy announcement.
- Some expected a further 25 bps cut to encourage borrowing and investment.
- Others anticipated a pause, considering the uncertain global environment and risks from trade and tariff issues.
The RBI finally chose stability, keeping the repo rate steady while maintaining a neutral stance.
What It Means for Borrowers and the Economy
For borrowers, the RBI’s pause means that loan rates are likely to stay where they are for now, as banks usually take cues from the repo rate. For the broader economy, the decision reflects the RBI’s attempt to strike a balance:
- Supporting growth with earlier rate cuts.
- Avoiding further risks in an uncertain global and domestic environment.
The Road Ahead
With inflation expected to stay well below target, the RBI still has room to act if growth slows sharply. However, for now, the central bank appears comfortable holding steady while monitoring both domestic and international developments.
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