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Below the Quote on RBI MPC Outlook by Hitesh Jain, Strategist, Institutional Equities Research, Yes Securities Ltd

RBI Hits Pause, Markets Sense Hawkish Bias
In line with our expectations, the Reserve Bank of India (RBI) unanimously kept the policy rate unchanged at 5.50% while maintaining a neutral stance. The Governor’s remarks, however, did not reflect dovish undertones, with the FY26 real GDP growth forecast retained at 6.5%. Having frontloaded policy action in June, the RBI now appears inclined to assess the transmission of earlier measures to credit markets and the broader economy before introducing further changes. Bond markets interpreted the policy as mildly hawkish, with 10-year G-Sec yields rising. Going forward, the RBI will likely assess evolving external trade dynamics (read: Trump’s tariffs on India) and the actual Q1 FY26 GDP print.

GDP Growth Likely to Undershoot RBI’s Expectations
With Q1 FY26 GDP data due later this month, we anticipate that the growth reading will undershoot the RBI’s estimate of 6.5% by 20–30 bps, given that several high-frequency indicators show only patchy signs of revival. The Governor acknowledged that although rural demand remains resilient, urban consumption—particularly discretionary spending—remains subdued. Government capital expenditure continues to underpin growth, but private investment is still lagging. Industrial output has been weak in recent months and uneven across sectors. We also hold reservations about the RBI’s FY26 real GDP growth forecast of 6.5%.

Benign Inflation Not Seen Sustaining, RBI Cautious on Future Trajectory
With FY26 CPI forecasts being downgraded to 3.1% from the earlier 3.7%, the inflation outlook for FY26 appears more benign. However, CPI is expected to rise to 4.4% in Q4 FY26 and 4.9% in Q1 FY27, as base effects turn less favourable. It is important to recognize that the RBI’s policy decisions are inherently forward-looking. Although current real interest rates are elevated—around 240 basis points—seemingly providing room for further easing, more than one rate cut in the remainder of FY26 would substantially narrow real rates for FY27, potentially reducing them to around 50 basis points, which appears less tenable.

Uneven Economic Recovery to Prompt October Rate Cut, Multiple Cuts Unlikely Without Growth Shock
The central bank is likely to deliver a calibrated 25 bps rate cut in the upcoming October 2025 policy meeting, influenced by the uneven economic recovery and trade tensions. However, if growth significantly undershoots the RBI’s FY26 GDP estimate, the probability of two additional rate cuts increases meaningfully. Additionally, any easing by the Fed would provide further headroom for the RBI to act without significantly destabilising capital flows.

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