RBI leaves interest rates unchanged, waits for GST, tariff impact

Mumbai: The Reserve Bank of India kept interest rates unchanged on Wednesday, citing the need to assess the impact of US tariffs, recent rate cuts and tax reductions. However, RBI Governor Sanjay Malhotra indicated scope for easing in the coming months to support the economy through the possible impacts of US tariffs.

The repurchase rate was kept unchanged at 5.5 per cent following a unanimous vote by the six-member committee. The committee also decided to continue with a "neutral" policy stance, allowing for flexibility to move in either direction based on future requirements.

The rate-setting panel cut interest rates by a total of 100 basis points this year, before coming to a pause at its previous bimonthly meeting in August. Malhotra said, "It was 'prudent' to wait for the impact of policy actions to unfold for better clarity before changing the rates.

The rupee, Asia's worst-performing currency this year, rose 0.1 per cent to 88.70 per dollar, while stocks traded higher.

The decision to hold the rates reflects the RBI's attempt to balance the competing priorities of subdued inflation and growth risks from US tariffs on one side, against the rupee's depreciation on the other.

Although the central bank raised its growth forecast for the fiscal year ending March 2026 to 6.8 per cent from 6.5 per cent, the Governor said the forward-looking projections for Q3 (October-December) and beyond are expected to be slightly lower than projected earlier due to trade-related issues.

RBI also lowered its inflation projection for the year to 2.6 per cent, which is well below the tolerance limit of 4 per cent. It had previously projected inflation to be around 3.1 per cent in the fiscal year.

Malhotra also announced measures to promote credit growth, including easing foreign exchange rules, infrastructure financing, a new draft for universal bank licensing, the internationalisation of the rupee, and easing limits for lending against shares and other financial instruments.

Vinod Francis, GM and CFO, South Indian Bank, said that "it was macro-prudential for the RBI MPC to hold key policy rates unchanged and defer the rate cut call till its next meeting in December. This wait-and-watch policy is a sound strategy, as it provides ample time and space for the committee to gain clarity about the transmission from the earlier front-loaded rate cut and how GST rationalisation influences the inflation trajectory. This caution is warranted in the wake of changing growth-inflation dynamics and growing haze on exports. On the regulatory side, the Expected Credit Loss (ECL) framework, to be implemented in phases, is a welcome move as it will improve banks' risk management by recognising stress much in advance. This indeed will make financial reporting standards more transparent."

"By maintaining the status quo, the RBI MPC has ensured stability while keeping ample policy space for future action, if required. The commentary highlights that upcoming moves will depend on the evolving impact of earlier measures, including the frontloaded rate cut and GST rationalisation. With inflation remaining at a historic low, the space to support growth remains wide, even as inflation trends remain a key variable to monitor.. The overall message is clear – future policy will be data-driven, and the outlook remains supportive of growth despite global uncertainties. Inflation has moderated significantly, with headline CPI projected at 2.6 per cent for FY 2025-26, aided by GST rationalisation and benign food prices. These measures are expected to boost rural demand and investment activity further, creating a favourable environment for sustainable growth," says Dr K Paul Thomas, MD & CEO, ESAF Small Finance Bank

Overall, the policy outlines a move to support growth by employing alternative measures, keeping the option for future rate cuts open.