RBI policy review: Status quo likely, but experts don't rule out a surprise cut, Pg22.

Key Highlights:

• The RBI Monetary Policy Committee (MPC) will convene from September 29 to October 1 to decide on the repo rate.
• Most economists anticipate the MPC will maintain the status quo for the second consecutive time, keeping the repo rate unchanged at 5.5 per cent.
• Some economists suggest a possible repo rate cut, while others predict the MPC will maintain a neutral monetary policy stance.
• GDP growth for the April-June 2025 quarter rose to 7.8 per cent, a five-quarter high.
• The government introduced a revised GST structure with two slabs of 5 per cent and 18 per cent, effective September 22.

Detailed Insights:

• The RBI had reduced the repo rate by 100 bps between February and June 2025, bringing it to the current rate of 5.5 per cent.
• The revised GST rates are expected to boost consumption growth, but the RBI is awaiting clarity on the full impact of GST and tariffs.
• Some economists argue for a 25 bps rate cut to project the RBI as a forward-looking central bank, with potential further cuts in October and December.
• Headline inflation is expected to remain benign due to lower food inflation and the pass-through of reduced GST rates to consumer prices.
• The MPC meeting occurs amidst discussions between India and the US to finalize a trade deal, with potential impacts on India's economic growth.
• If the repo rate remains steady, External Benchmark Lending Rates (EBLR) linked to the repo rate will remain unchanged, but lenders may revise MCLR-linked rates.
• The RBI retained its real GDP growth projection at 6.5 per cent in FY26 but lowered its inflation estimate to 3.1 per cent in the August policy.

Key Concepts Involved:

• Repo Rate: The rate at which commercial banks borrow money from the RBI.
• Monetary Policy Committee (MPC): A committee within the RBI responsible for setting monetary policy.
• GDP Growth: The rate at which a country's economy grows.
• GST: Goods and Services Tax, an indirect tax levied on the supply of goods and services.