RBI Monetary Policy October 2025: GDP Growth Raised to 6.8%, Inflation Outlook Eased Amid Tariff Concerns

The Reserve Bank of India, in its October 2025 policy review, has kept the repo rate steady at 5.5%. The decision was taken unanimously by the Monetary Policy Committee (MPC), which voted to maintain the current interest rate and continue with a neutral stance which had been revised from 'accommodative' to 'neutral' during the June session.

For borrowers, this means no immediate change in loan EMIs, while banks also retain stable borrowing costs. The RBI had earlier cut rates by 100 basis points between February and August 2025 but has paused since then to make a balance between growth and inflation control.

GDP Growth Forecast Raised to 6.8% for FY26

RBI has upgraded its GDP growth forecast for FY26 to 6.8% from 6.5% earlier. Governor Sanjay Malhotra said, "Strong domestic demand, improving rural consumption, and higher government spending are driving the positive outlook."

"Tariff-related decisions are likely to decelerate growth, Ongoing tariff and trade policy uncertainties will impact external demand, and prolonged geopolitical tension and volatility in international financial markets caused by the risk of sentiments of investors pose downside risks to the growth outlook," he further added.

Quarterly GDP Growth Projections for FY 26

Growth in Q2 FY26 has been revised upward to 7.0% from 6.7%, while in Q3 FY26, the RBI expects growth to ease slightly to 6.4%, down from the earlier 6.6% estimate. The trend continues in Q4 FY26, with GDP projected at 6.2%, a marginal cut from 6.3%.While in Q1 FY27, GDP growth is expected at 6.4%, slightly lower than the previous 6.6% forecast, because of the continuing impact of external risks and policy-related factors.

Governor Malhotra noted that while growth momentum is strong in the first half of FY26, external risks and tariffs may weigh on the second half of the year.

Despite the RBI's upbeat stance, brokerage firm Emkay Global pictured a more cautious outlook. In its report, Emkay said the stronger-than-expected 1Q GDP print was partly due to "deflator noise, frontloaded US exports, and higher government spending."

The brokeragare noted that "GDP growth above 7% could continue into Q2 due to statistical factors, but the second half of FY26 is likely to slow down as the impact of tariffs begins to hit the economy."

Inflation Outlook Slashed

As a relief for households, the RBI sharply revised down its inflation forecast for FY26 to 2.6% from 3.1% earlier. Lower food prices, easing global commodity costs, and the rationalisation of GST are expected to keep price pressures under control.
Governor Sanjay Malhotra said, "Growth-inflation dynamics have shifted since the August monetary policy. The rationalisation of GST is expected to have a dampening effect on inflation."

Quarterly CPI Inflation Projections:

For Q2 FY26, inflation is expected to remain low at 1.8%, down from the earlier estimate of 2.1%. The projection for Q3 FY26 is also at 1.8%, revised downward from 3.1%. However, inflation is expected to rise moderately in the latter half, with Q4 FY26 forecast at 4.0%, slightly lower than the previous 4.4% projection, mainly because of the seasonal and demand factors. Looking into the next fiscal year, Q1 FY27 inflation is projected at 4.5%, down from the earlier 4.9% estimate.