- Published on: 29 Sep 2025
- Last updated on: 29 Sep 2025
- Post Views: 144

The US Federal Reserve cut its policy rate by 25 bps in September and signalled further reductions later in 2025, citing labour market softness. India’s economic growth accelerated to 7.8% YoY in Q1-FY26, a five-quarter high, supported by a favourable deflator and front-loaded government spending. Early Q2 indicators point to sustained momentum across industry, consumption, and services. The GST Council’s reform signals a stronger policy focus on reviving private consumption. Considering this and better-than-expected Q1 growth, we revise our FY26 GDP forecast to 6.8% (from 6.2%). Meanwhile, CPI inflation projection for FY26 is lowered to 2.5% (from 2.8%) owing to GST rate cuts. However, external headwinds from US trade policies, alongside narrowing fiscal space from tax reductions, remain key risks. With a favourable inflation outlook, we expect the RBI to cut the policy rate by 25 bps in Q3-FY26 to nurture consumption recovery. The policy repo rate cut in the October meeting is a close call, with some possibility of it being delayed, with a dovish tone, until December.