RBI Monetary Policy Report October 2025: Simplified

India’s economy remains resilient with strong consumption and investment driving growth, while inflation is benign but poised to pick up gradually from Q4 2025–26. The Reserve Bank of India (RBI) maintains a balanced policy stance to support growth without compromising price stability.

1. Macroeconomic Outlook

Headline GDP growth accelerated to 7.8% in Q1 2025–26, led by robust private and government consumption and buoyant fixed investment. Services growth reached 9%, manufacturing expanded and agriculture rose 3.7%. India’s credit rating was upgraded to BBB Stable by multiple agencies which reflecting strong fundamentals.

2. Inflation Dynamics

• Headline CPI inflation fell from 4.7% in H2 2024–25 to a multi-year low of 1.6% in July 2025, before edging up to 2.1% in August due to seasonal food price upticks.
• Food inflation turned deflationary for nine consecutive months amid ample supply and favourable base effects.
• Core inflation (CPI ex-food and fuel) hovered around 4%.
• RBI projects average CPI inflation at 2.6% in 2025–26, rising to 4.5% in 2026–27 as base effects wane and demand strengthens.

3. Growth Projections

• RBI baseline forecast: Real GDP growth of 6.8% in 2025–26, with quarterly momentum of 7.0% in Q2, 6.4% in Q3 and 6.2% in Q4.
• For 2026–27, growth is projected at 6.6%, supported by government capex, GST reforms and normal monsoon.

4. Financial Conditions & Liquidity

• RBI cut the repo rate by a cumulative 100 bps to 5.5% between February and June 2025; stance shifted from neutral to accommodative and back to neutral.
• CRR is being phased down by 100 bps starting September 2025 to bolster liquidity.
• Surplus system liquidity averaged ₹6–7 lakh crore, keeping money market rates aligned with the policy rate.
• Ten-year G-sec yields softened modestly; T-bill yields fell, reflecting abundant liquidity.

5. External Environment

• Global growth is projected at 3.0% in 2025 and 3.1% in 2026, below pre-pandemic averages.
• Commodity prices eased overall; Brent crude averaged US $70/bbl assumption for H2 2025–26.
• US Fed paused until September, then cut by 25 bps; ECB and other central banks adopted cautious easing.
• Trade policy uncertainty, geopolitical tensions, and weather shocks remain key risks.

6. Balance of Risks

• Downside: Slower global growth, higher oil prices, INR depreciation, adverse weather shocks.
• Upside: Faster resolution of trade disputes, benign commodity prices, stronger global demand.

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