Possibility of RBI Reducing Interest Rates in Upcoming Meeting Amid Optimism for Stable GDP Growth

There are indications that the Reserve Bank of India may reduce interest rates. Considering the stability in the country’s GDP growth, there is a possibility of an interest rate cut in the Monetary Policy meeting scheduled for October, as expressed by the rating agency S&P Global.

Interest Rates Remain Unchanged in the Last Nine Meeting

S&P Global Ratings has maintained its GDP growth estimate at 6.8 percent. The RBI’s Monetary Policy Committee (MPC) meeting will be held from October 7-9, during which it may decide on interest rate cuts. 

Since the repo rate was raised to 6.5 percent about a year and a half ago, there have been no changes in interest rates in the last few meetings. The RBI MPC has not made any changes to the rates since February 2023.

Increased Possibilities of Rate Cuts Following Fed Actions

With optimism surrounding improvements in the U.S. economy, the American Federal Reserve has implemented a 0.5 percent cut in interest rates. Following the dovish stance of the Fed, there are growing possibilities that the RBI may also adopt a softer approach and reduce interest rates.

GDP Growth Expected to Remain at 6.9 Percent

In its new economic outlook for the Asia-Pacific region, S&P has maintained its GDP growth estimate at 6.9 percent for the financial year 2025-26. The decline in GDP growth in India during the June quarter was attributed to a decrease in urban demand due to high interest rates. The GDP growth reached 8.2 percent in the financial year 2023-24.

Keeping Inflation at 4 Percent is Unlikely

According to the report, the central government has set a target to reduce the fiscal deficit to below 4.5 percent of GDP in the financial year 2025-26. On the other hand, maintaining inflation at the 4 percent level is considered unlikely. Due to challenges related to climate change, inflation is expected to average around 4.5 percent.