Domestic economic growth remained robust in Q1:2025-26, with a stronger-than-expected 7.8% expansion, while high-frequency indicators suggest that growth in Q2 is likely to remain strong. “Domestic economic growth too was resilient in Q1:2025-26… Several indicators suggest that agricultural prospects are bright in the current year; consequently, rural demand is likely to be buoyant,” the Minutes noted.
Growth for 2025-26 has been revised upwards to 6.8% from the 6.5% projected in the August policy, even as the outlook for H2 is softer.
The revision, the MPC said, “subsumes the expected adverse effects of the US tariffs, partly compensated by the likely growth-inducing effects of GST rationalisation,” highlighting how GST 2.0 measures have cushioned the economy against external shocks.
Benign inflation opens policy space
India’s headline inflation fell to an eight-year low of 1.54% in September, driven by a sharp decline in food prices. The central bank has revised its inflation forecast for 2025–26 to 2.6%, down from 3.1% in August and 3.7% in June.
“The benign outlook for headline and core inflation as a result of the downward revision of projections opens up policy space to further support growth,” RBI Governor Sanjay Malhotra wrote in the minutes. He also noted that while the intent is to continue facilitating growth-enabling conditions, “policy uncertainty, rapidly evolving developments and the foggy outlook suggest that the panel should take a view for each policy based on the prevailing macroeconomic conditions.”While the MPC retained the key repo rate at 5.50% earlier this month, after cutting rates by 100 basis points in 2025, two members—Nagesh Kumar and Ram Singh—favoured a shift to an “accommodative” stance to signal readiness for future easing.
Growth, tariffs, and rates: Inside RBI’s MPC observations
Nagesh Kumar, external member of the MPC, noted that while first-quarter growth exceeded expectations, “future projections remain exposed to external shocks.” He explained, “The acceleration in first-quarter growth has been underpinned by consumption, especially rural consumption, and front-loading of government capex. Private investment remains sluggish… perhaps due to the trade policy uncertainties.” While supporting a pause in the repo rate, Kumar suggested that the stance could shift from neutral to accommodative.
Prof. Ram Singh highlighted the benign inflation trajectory and stronger growth prospects, observing that CPI headline inflation remained low at 2.1% in August, with core inflation at 4.2%. He noted that past monetary easing and fiscal measures are still working through the system. Singh also warned that “the prevailing inflation rate is too low – it is neither conducive for businesses nor for public finances” and added that a further rate cut at this stage could risk “overdose.” He voted to keep rates unchanged but supported a shift to an accommodative stance.
Saugata Bhattacharya underlined that moderation in inflation does not automatically justify a rate cut, as domestic economic activity remains resilient and external uncertainties continue to pose risks.
He cited the MPC resolution: “The impact of the frontloaded monetary policy actions and the recent fiscal measures is still playing out. Trade related uncertainties are still unfolding. The MPC therefore considered it prudent to wait for the impact of policy actions to play out and greater clarity to emerge before charting the next course of action.”
Deputy Governor Poonam Gupta and other panel members supported a pause in rates, highlighting the need to assess the transmission of previous rate cuts. “Announcing a rate cut at this time may only be marginally effective,” Gupta wrote. She also noted that GST rationalisation and reduced food price pressures have created room for policy easing, but the effects of previous measures are yet to fully materialise.
Shri Indranil Bhattacharyya observed the resilience of the Indian economy despite geopolitical and trade-related uncertainties. He noted that GDP growth for Q1 was “significantly higher than the consensus estimate,” and high-frequency indicators suggest continued buoyancy in Q2. He pointed to GST rationalisation, previous monetary easing, and fiscal measures as supporting domestic demand and potentially offsetting external headwinds. However, Bhattacharyya cautioned that “growth in H2:2025-26 and beyond is likely to be determined by the interplay of domestic tailwinds and external headwinds,” indicating prudence before any further monetary action.
The next MPC meeting is scheduled for December 3–5, and economists expect the RBI to consider a rate cut then, depending on evolving macroeconomic conditions.
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