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The Reserve Bank of India's Monetary Policy Committee (MPC) is expected to reduce the policy rates by 25 basis points (bps) in its policy announcement on Wednesday, according to a report by Union Bank of India.
The report suggested that the downward trend in inflation has created room for such a move, and this cut is being seen as a "booster cut" from the RBI. It stated "Our baseline view is of a 25bps repo rate cut in this meeting. The view is premised on another round of sharp downward revision in inflation projection for FY26". The upcoming October MPC meeting has become too close to call, with markets debating whether the committee will go ahead with a cut or hold the rates steady. The report, however, has presented its baseline view of a 25 bps cut in this meeting. The expectation is built on the premise of another sharp downward revision in inflation projections for FY26, with estimates now closer to 2.5 per cent with a downward bias. The revision also factors in the nearly 60 bps impact of the Goods and Services Tax (GST) on inflation, starting from October 2025. The report highlighted that communication will be as crucial as the rate decision itself. It notes that a dovish pause could prove more effective in transmitting benefits through the bond market and bank lending rates compared to a hawkish cut. Drawing comparisons, it stated that while the US Federal Reserve announced a risk management cut earlier, the RBI's move could act more as a sentiment booster for markets. Looking ahead, the report also added that timing the final few cuts in an easing cycle is always difficult. However, it expects at least another 25 bps cut by December 2025. An explicit acknowledgement of the recent downward surprises in inflation data, coupled with the positive impact of GST reforms, and balanced against growth challenges from ongoing tariff wars, would provide strong policy guidance in the current scenario. The Monetary Policy Committee (MPC) of the Reserve Bank of India begins its three-day meeting in Mumbai to decide on the policy rates. The members of the committee will gather to discuss and deliberate on the repo rates and review the prevailing economic conditions before arriving at a decision. The meeting is scheduled to continue for three days, after which the announcement of the monetary policy outcome will be made on Wednesday, October 1. The focus of the meeting will be on assessing the current state of the economy and determining whether any changes are required in the key policy rates to support growth while managing inflation. RBI Governor Sanjay Malhotra will announce the outcome of the meeting on Wednesday at 10 AM. (ANI)
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