Author: Staff Writer

In a major development, the Reserve Bank of India (RBI) decided to keep its key policy interest rate, the repo rate, unchanged at 5.5%. This decision was unanimously supported by the six-member Monetary Policy Committee (MPC) and aligns with market expectations. The RBI also maintained its neutral monetary policy stance, indicating a balanced approach to managing inflation and supporting economic growth.

Governor Sanjay Malhotra emphasized that the committee opted for a “wait and watch” approach to allow recent policy decisions, including earlier rate cuts and Goods and Services Tax (GST) reforms, to take effect. He noted that the effects of earlier front-loaded cuts are still playing out, and the committee chose to pause further action for now.

In its updated projections, the RBI revised India’s GDP growth forecast for the fiscal year 2025–26 to 6.8%, up from the previous estimate of 6.5%. This adjustment reflects stronger-than-expected economic performance, with a 7.8% expansion in the April–June quarter. The RBI now projects quarterly growth rates of 7.0% for Q2, 6.4% for Q3, and 6.2% for Q4. For the first quarter of FY27, growth is projected at 6.4%.

Concurrently, the RBI lowered its average headline inflation projection for FY26 to 2.6%, down from the earlier forecast of 3.1%. This revision is attributed to the dampening impact of GST rationalization and a sharper-than-expected decline in food prices. Governor Malhotra stated that the overall inflation trajectory has turned more benign, though external uncertainties continue to cloud the economic outlook.

Despite these positive domestic indicators, the RBI expressed caution regarding external risks, particularly the potential impact of U.S. tariffs on Indian exports. Governor Malhotra acknowledged that higher U.S. tariffs of up to 50% on Indian goods could slow external demand. He noted that while domestic economic momentum remains resilient, global headwinds and tariff-related uncertainty warrant caution.

The RBI also highlighted that the decline in headline inflation is largely due to easing food inflation. Retail inflation has remained below the 4% target since February, falling to a six-year low of 2.07% in August, supported by softer food prices and a favorable base effect.

Regarding the Indian rupee, Governor Malhotra stated that the RBI is closely monitoring currency movements. He noted that monetary policy transmission is broadly taking place across sectors and added that the remaining reduction in the cash reserve ratio (CRR) is expected to further strengthen transmission. System-level indicators for banks and non-banking financial companies (NBFCs) continue to reflect strong health.

Looking ahead, the RBI reiterated that its primary mandate is to keep Consumer Price Index (CPI)-based retail inflation at 4%, with a tolerance band of ±2%. The committee’s decision to maintain the repo rate at 5.5% reflects a cautious yet optimistic outlook, balancing domestic economic resilience with external uncertainties. The RBI’s next policy review is scheduled for December 2025, where further adjustments will be considered based on evolving economic conditions.

In a crucial development, the Reserve Bank of India (RBI) has broadened its lending guidelines to allow banks to provide need-based working capital loans to manufacturers that use gold as a raw material, a facility previously limited to jewellers.

Traditionally, banks are barred from financing the purchase of gold or silver in any form, or from lending against primary gold or silver.

However, scheduled commercial banks (SCBs) have been permitted to grant working capital loans to jewellers under a specific carve-out. The new amendment now extends this provision to borrowers engaged in manufacturing or industrial processing where gold or silver is used as an input.

According to the Reserve Bank of India (Lending Against Gold and Silver Collateral) (1st Amendment) Directions, 2025, issued on Monday, September 29, scheduled commercial banks and select urban cooperative banks (Tier 3 and 4) can provide need-based working capital financing to such borrowers, taking gold or silver as collateral.

The directions emphasize that these loans cannot be used to acquire or hold gold or silver for speculative or investment purposes.

In a related move, the RBI also issued the Reserve Bank of India (Interest Rate on Advances) (Amendment) Directions, 2025, aimed at offering borrowers more flexibility while allowing lenders greater discretion.

Under current norms, banks must link all floating-rate retail loans—including housing, auto, and MSME loans—to an external benchmark. While the spread over the benchmark is at the bank’s discretion, components other than the credit risk premium can only be revised once every three years.

The amended guidelines now allow banks to reduce other spread components earlier if it benefits the borrower and give them discretion to offer an option to switch to a fixed rate at the time of reset, beyond the mandatory option for EMI-based personal loans.

Additionally, the RBI revised the eligible limits for perpetual debt instruments (PDIs) denominated in foreign currency or rupee-denominated bonds overseas, enabling banks to raise more Tier 1 capital through international markets.

All the revised directions will come into effect from October 1, 2025, providing greater flexibility to banks while supporting manufacturing entities that rely on gold as a key input.

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Indian equity benchmarks Sensex and Nifty experienced a sharp reversal in the early hours of September 30, 2025. The Sensex fell 450 points from its day’s high, while the Nifty declined by 131 points.

As of 11: 54 AM IST, the Sensex was at 80,344, down 20 points after hitting a low of 80,201 in early morning trade. The Nifty was well below 24,700, trading at 24,633 after hitting a low of 24,593 earlier today.

Analysts attribute the market’s uncertainty to three primary factors.

First, caution prevailed ahead of the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) meeting scheduled for October 1.

While a majority of economists anticipate the RBI to maintain the current interest rate, some expect a dovish stance to support economic growth. Experts believe the present growth-inflation dynamics do not warrant a rate cut, suggesting the RBI may hold rates while sending a dovish message to support growth momentum.

Second, sustained foreign institutional investor (FII) selling has contributed to bearish sentiment. Despite a positive institutional inflow of over ₹1,000 crore, the market closed negatively, indicating that foreign selling continues to weigh on market performance.

The near-term market structure appears weak, experts believe, with sustained FII selling and absence of positive triggers preventing any strong recovery.

Despite these challenges, sectors such as metals and pharmaceuticals showed resilience, with the Nifty Metal index gaining 0.8% and the Nifty Pharma index advancing 0.5%. Public sector banks also saw positive movement, with the Nifty PSU Bank index rising 1.8% following the RBI’s easing of lending norms and tightening of oversight measures.

Investors remain cautious as they await the RBI’s policy decision, which could provide direction for the markets in the near term.

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