India's Goldilocks Moment: RBI's Strategic Pause on Policy Rates

ICRA forecasts stability in India's policy rates following the RBI's reduction in repo rate amidst robust economic growth and low inflation. Future rate cuts are unlikely without substantial underperformance in growth. Tax adjustments have helped cool inflation, with the RBI injecting liquidity to bolster growth.

In an unprecedented turn of events, the Reserve Bank of India (RBI) has opted to cut the repo rate at a time of both robust GDP growth and low inflation. Rating agency ICRA anticipates that this may mark the end of the current cycle of rate cuts unless economic growth significantly falls short of projections.

Barring a drastic downturn in growth prospects, ICRA maintains that the latest rate cut is likely the conclusion of this easing cycle. The agency noted that the RBI's revision of the quarterly CPI inflation projections aligns with expectations, primarily influenced by recent GST policy adjustments.

The cut in inflation for October 2025 is attributed to GST rate cuts, impacting core CPI excluding gold, rather than a shift in demand. The Reserve Bank has further revised its inflation projection for 2025-26 to 2.0% and adjusted GDP growth to 7.3%. Additionally, a durable liquidity infusion is planned via open market operations in December 2025, signaling optimism in sustaining economic progress.

(With inputs from agencies.)