RBI Begins Two-Day Policy Review Amid Subdued Inflation, Currency Pressures

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) kicked off its two-day meeting on Monday amidst subdued domestic inflation and currency pressures. Markets are pricing in a status quo on rates, but chatter of a potential 25-basis-point cut has gained traction following the U.S. Federal Reserve's dovish signals.

According to PhillipCapital's weekly Indonomics tracker, macro indicators remain stable, with inflation hovering comfortably within the RBI's 2–6% tolerance band. This supports their expectation of a status quo policy. However, they also note that a small rate cut would be justified given the current global financial conditions and the U.S. Fed's tilt towards further monetary easing. 

Nuvama Institutional Equities also echoes the“close call” view. Their economists highlight that while benign inflation, steep tariffs, and weak domestic demand suggest the need for a rate cut, policymakers may prefer a wait-and-see approach with the rupee's slide to record lows and the likelihood of inflation inching up towards the year-end. However, they also believe that the case for easing is gaining momentum, and that a“measured easing cycle” later this year is highly likely.

Beyond rates, liquidity management will be closely monitored. 

PhillipCapital points to a swing in banking system liquidity from surplus to deficit in late September, which could lead to some short-term measures by the RBI. Investors will be watching for the MPC's commentary on liquidity, as well as its assessment of global risks and currency volatility.

While the October policy meeting may not deliver fireworks, it could lay the groundwork for easing in the months ahead, especially if global central banks continue down the dovish path.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

MENAFN29092025007385015968ID1110122954