The MPC unanimously voted to hold the policy repo rate at 5.5%. The Standing Deposit Facility (SDF) rate remains at 5.5%, while the Marginal Standing Facility (MSF) rate and the bank rate stay at 5.75%. The central bank has continued with its neutral policy stance, indicating room for flexibility depending on domestic and global developments.
Inflation Forecast Cut Sharply
Governor Malhotra announced a significant downward revision in inflation projections. “The average headline inflation for FY26 has been reduced to 2.6%, from earlier estimates of 3.7% in June and 3.1% in August,” he said. The fall is attributed to a sharp decline in food prices and the rationalisation of Goods and Services Tax (GST) rates.
GDP Growth Revised Up to 6.8%
India’s growth outlook has improved, with the central bank projecting real GDP growth at 6.8% for FY26, up from its earlier estimate of 6.5%. The RBI attributed the upgrade to strong Q1 performance, robust domestic demand, and favorable monsoon conditions. “The Indian economy continues to exhibit strength,” Malhotra noted.
Global and Domestic Risks Weigh on Outlook
Despite optimism, the RBI flagged external headwinds. Tariff uncertainties, geopolitical tensions, and volatility in global markets could weigh on India’s trade prospects. “Ongoing tariff and trade policy uncertainties will impact external demand,” Malhotra cautioned, adding that prolonged global tensions may affect investor sentiment.
Foreign Exchange Reserves at $700.2 Billion
India’s foreign exchange reserves stood at $700.2 billion as of September 26, down by $3 billion from the previous week. The RBI has been actively intervening in the forex market to stabilise the rupee, which recently touched an all-time low of 88.79 against the U.S. dollar. The currency has since recovered marginally to 88.71.
Market Reaction
Equity markets reacted positively ahead of the announcement. The BSE Sensex rose 142 points to 80,410, while the NSE Nifty gained 50 points to trade at 24,661. Analysts described the decision as a “dovish pause,” noting that the central bank could consider modest rate cuts later in FY26 if risks escalate.