Monetary Policy Review - Pause, Consolidate, and Ensure Transmission

The RBI’s MPC has delivered a dovish pause today, balancing confidence over improving inflation dynamics with a prudent acknowledgment of persistent global risks and recent domestic reforms.

By holding rates steady, the MPC has signalled a deliberate consolidation phase—prioritizing the transmission of 100 basis points of previous easing instead of embarking on further immediate action.

With surplus liquidity and lagging lending rate pass-through, the RBI’s priority now shifts to ensuring that credit delivery reaches the real economy. Should credit growth momentum remain subdued, the central bank retains the room to ease further, including through fine-tuning the WACR towards the policy corridor’s lower bound—potentially before the December review if conditions warrant it.

India’s economic resilience stands out, underpinned by strong prospects in agriculture due to an above-normal monsoon, robust kharif sowing, and healthy reservoir levels. These fundamentals are further supported by momentum in the services sector, stable employment, and recent GST rationalisation, which together are expected to elevate demand and offset external headwinds, including high US tariffs.

As expected, the RBI will wait to gauge the full impact of structural reforms and GST changes before making further policy adjustments.

The policy stance remains flexible, We expect a 25-basis point cut in December 2025, with potential for additional easing if growth surprises negatively. The 10-year yield should trade between 6.40% – 6.60% over the coming quarter, and for the USDINR pair to trade with a modest depreciation bias, with the RBI poised to act against undue currency swings.

For now, the message from MPC is clear: pause, consolidate, and ensure transmission—while keeping all options open amid an evolving global and domestic backdrop.

Disclaimer : This content is only for informational purpose. It does not make any recommendation to act or invest.

Source: HDFC Securities Prime Research

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