RBI Monetary Policy Report October 2025: Simplified

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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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