RBI Likely to Hold Rates in October Despite Low Inflation

The Reserve Bank of India (RBI) is expected to keep interest rates unchanged in its October 1 policy meeting, even though inflation is under control and there is scope for a rate cut. Economists believe the central bank will adopt a cautious approach due to strong economic growth, rising consumption after GST cuts, and possible risks from food prices.

Inflation Under Control

Retail inflation in India remains within RBI’s comfort zone. The Consumer Price Index (CPI) rose to 2.07% in August, up from 1.61% in July, which was an eight-year low. Both figures remain well within RBI’s medium-term target of 2–6%.

Experts say the recent GST rate cuts, effective from September 22, could help bring down prices further. Some economists expect inflation in September to drop to around 1.75%, and possibly dip below 1% in October due to favorable base effects.

Strong Growth Keeping RBI Cautious

India’s economy continues to show resilience. GDP grew by 7.8% in the first quarter of FY26, beating expectations. This strong growth, combined with the consumption boost from GST reforms, reduces the urgency for the RBI to cut rates.

According to HDFC Bank’s principal economist Sakshi Gupta, “The RBI has room to cut rates by 25–50 basis points, but given the strong GDP numbers, we don’t expect a cut in the current cycle.”

Similarly, Soumya Kanti Ghosh, chief economic adviser at State Bank of India, pointed out that with inflation slightly above 2% in August, the case for an October rate cut looks weak. Even a December cut may be difficult if growth remains strong.

Food Prices and Global Uncertainty Pose Risks

While GST cuts may support consumer spending, risks to inflation remain. Excess rainfall in parts of northern and central India could damage crops and push food prices higher.

Global headwinds are also a concern. Rising tariffs and trade uncertainties may impact India’s growth in the coming months. Gaura Sengupta, chief economist at IDFC First Bank, said growth momentum may slow in the second half of FY26, though she still expects a 25 basis point rate cut in Q3FY26.

Economists at ANZ also noted that while inflation trends leave room for easing, the strong GDP performance has lowered chances of an immediate cut.

Wait-and-Watch Approach

For now, most experts agree that the RBI will hold policy rates steady in October. The central bank is likely to wait for clearer signs on food inflation, the impact of GST cuts, and global economic trends before making any moves later this year.