Reserve Bank of India Expected to Cut Rates to 5.25% in October Amid Growth Slowdown

Key Takeaways:Economists at Capital Economics expect the Reserve Bank of India (RBI) to cut its repo rate by 25 basis points to 5.25% on October 1.A further rate cut to 5.00% by the end of 2025 is projected.India’s GDP growth outlook for 2026 was revised down from 7% to 6.5% due to weaker external demand and U.S. tariffs.Inflation is forecast to gradually rise toward the RBI’s 4% target in the second half of 2026.The 10-year government bond yield is expected to hold near 6.50% through 2025–2026.According to Jinshi Data, Capital Economics economist Shilan Shah said India’s growth momentum has been hit by U.S. tariffs, creating pressure for the central bank to ease policy. The RBI is now expected to deliver a 25-basis-point rate cut at its upcoming policy meeting on October 1, lowering the repo rate to 5.25%.Further easing could follow, with forecasts pointing to another 25-basis-point cut by late 2025, bringing the policy rate to 5.00%.While growth is expected to cool, inflation is projected to rise steadily toward the 4% target by the second half of 2026. India’s 10-year bond yields are likely to remain stable near 6.5% through 2025 and 2026, reflecting a balance of slower growth and contained price pressures.