RBI Holds Rate at 5.50% as Forex Reserves Near $700 Billion

The Reserve Bank of India kept its benchmark repo rate unchanged at 5.50 percent with a neutral stance at its October 2025 Monetary Policy Committee meeting, signalling a balanced approach that supports economic momentum while keeping financial stability in focus.

The decision, announced after the 57th MPC meeting held from September 29 to October 1, came alongside a brighter growth outlook and sharply lower inflation forecasts, painting a cautiously optimistic picture of Asia's third-largest economy.

Contents

01

Rate Decision and Policy Stance

02

Growth Forecast Upgraded

03

Inflation at Multi-Year Lows

04

External Sector Strength

05

What Lies Ahead

Rate Decision and Policy Stance

The RBI's neutral stance reflects what the central bank described as resilient domestic demand, supportive financial conditions, and a stable external sector. By holding the repo rate steady, the central bank is opting to let the economy absorb recent gains without tightening or loosening its grip prematurely.

Growth Forecast Upgraded

The RBI revised India's GDP growth forecast for the fiscal year 2025-26 upwards to 6.8 percent, a notable jump from its earlier estimate of 6.5 percent. The upgrade follows a strong first quarter in which real GDP grew 7.8 percent, the fastest pace in seven quarters, driven by robust investment and consumption.

Quarterly projections show growth at 7.0 percent in Q2, 6.4 percent in Q3, and 6.2 percent in Q4. For FY 2026-27, the RBI estimates growth at 6.6 percent, assuming a normal monsoon and stable conditions.

Inflation at Multi-Year Lows

Headline consumer price index inflation declined for nine consecutive months, reaching an eight-year low of 1.6 percent in July 2025 before edging up to 2.1 percent in August. The RBI lowered its CPI inflation forecast for the full fiscal year to 2.6 percent, down from a previous projection of 3.1 percent.

The sharp disinflation gives the central bank room to maintain its accommodative-neutral posture without stoking price pressures.

External Sector Strength

India's external position has strengthened considerably. The current account deficit narrowed to just 0.2 percent of GDP in the first quarter of FY 2025-26, down from 0.9 percent a year earlier.

Foreign exchange reserves are also approaching a milestone. According to RBI data, reserves rose by 2.703 billion US dollars to 698.192 billion dollars during the week ended July 25, 2025, recovering from a decline of 3.06 billion dollars the previous week. Foreign currency assets stood at 588.926 billion dollars, while gold reserves reached 85.704 billion dollars.

What Lies Ahead

The combination of falling inflation, a narrowing current account deficit, and near-record forex reserves gives the RBI considerable policy flexibility heading into the remainder of the fiscal year. With consumer optimism strengthening and credit flow improving, the central bank's decision to hold rates steady appears calibrated to sustain growth without risking macroeconomic stability.