The Reserve Bank of India (RBI) is anticipated to keep both policy rates and stance unchanged for the tenth consecutive time in its upcoming October policy meeting, according to a report by the Bank of Baroda (BoB). The Monetary Policy Committee (MPC) is expected to take a cautious approach, awaiting more clarity on inflation trends before considering any rate cuts.

Inflation Remains a Key Factor

Although inflation has stayed below the RBI’s target of 4% for the last two months, BoB’s report suggests this decline is partly due to a “positive base effect.” The MPC is expected to hold rates steady in its meeting starting on October 7, with decisions to be announced on October 9.

Despite a generally favorable outlook, the report highlights that food price volatility will likely keep the RBI from cutting rates. A rate cut may only be considered in December, should inflation stabilize further.

Growth Outlook and Economic Activity

India’s economic fundamentals remain strong, with growth projected at 7.3-7.4% for FY25. However, recent indicators paint a mixed picture of economic activity. While the manufacturing Purchasing Managers’ Index (PMI) fell from 57.5 in August to 56.5 in September, services sector activity continues to expand. Vehicle and tractor sales have also moderated, while core sector output saw a contraction for the first time since February 2021.

Despite these challenges, the report suggests the overall economic outlook remains positive, and the RBI is likely to wait a few more months before reassessing the inflation trajectory and considering a potential rate cut.

In its last MPC meeting, the RBI kept the policy rates steady at 6.5%, citing concerns over inflation, which continues to stay above the target range. The current cautious approach reflects the central bank’s focus on long-term inflation and growth stability.