RBI Policy Preview: Markets Brace for Status Quo, Eyes on Guidance

New Delhi, October 1 –
As the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) prepares to announce its October policy decision at 10 a.m., anticipation grips Dalal Street and policymakers alike. While markets broadly expect the central bank to hold the repo rate steady, the real interest lies in Governor Sanjay Malhotra’s guidance on growth, liquidity, and inflation management amid a volatile global backdrop.

From trading floors in Mumbai to policymaking corridors in New Delhi, stakeholders are aligned on one message: the RBI’s stance will determine how resilient India’s financial system remains as the global economy navigates uncertainty, protectionist trade moves, and unpredictable monsoon patterns.

Backdrop: June’s Surprise Cut Still Fresh in Memory

The June policy surprised many when the RBI trimmed rates by 25 basis points, citing the need to support growth even as inflation had not fully cooled. That decision was welcomed by corporate borrowers but raised eyebrows among hawkish economists concerned about headline CPI risks.

Now, just four months later, consensus points toward a pause. A Reuters poll of economists shows a near-unanimous expectation that the repo rate will remain unchanged, with a focus instead on liquidity management and forward guidance.

For India’s bond and equity markets, today’s communication is as critical as the rate itself. The RBI’s commentary will set the tone for FY26 fiscal planning, bond issuances, and corporate borrowing costs.

Global Headwinds: Trade, Tariffs, and Capital Flows

India’s central bank is operating in a world where geopolitics increasingly influences capital markets.

The U.S. tariff overhang and higher H-1B visa fees have already spurred foreign portfolio outflows in September.
Elevated crude prices and a firming U.S. dollar compound external stress, making foreign investors wary of emerging markets.

Yet, domestic inflows have cushioned the impact. Mutual funds, retail SIPs, and a robust tax collection cycle have ensured the indices have not collapsed under external pressure.

Inflation Still the Elephant in the Room

Even as wholesale inflation moderates, food inflation remains stubborn. The uneven monsoon withdrawal, delayed rains in some regions, and surpluses in others have created uncertainty for crops. Pulses, vegetables, and dairy products show persistent price pressures.

The RBI is unlikely to shift its “withdrawal of accommodation” stance until there is clear evidence that CPI will glide toward the medium-term target of 4%. Analysts believe commentary on FY26 inflation bands will be closely watched.

Liquidity Dynamics: Absorption vs Growth Needs

Banking liquidity has been a tricky balancing act:

Excess liquidity risks fueling inflation and speculative flows.
Tight liquidity risks stifling credit growth, especially for MSMEs.

Governor Malhotra’s language on liquidity absorption tools (CRR, VRRR auctions, bond supply smoothing) could hint at the RBI’s operational stance for the next quarter.

Market Impact: Traders on Edge

Ahead of the policy, Gift Nifty signaled a steady open, suggesting traders are cautiously optimistic. Sectoral plays include:

Banks/Autos/Realty – Most sensitive to repo rate outlook; expected to swing with the Governor’s tone.
FMCG/IT/Pharma – Defensives that could outperform if RBI emphasizes inflation vigilance.
PSU Bonds & Sovereign Yields – Could see volatility depending on RBI’s liquidity strategy.

Corporate Sector View

India Inc. remains divided: exporters demand softer rates to counter global slowdown, while domestic consumer-facing firms fear inflationary spillovers.

Automobile manufacturers hope stable financing costs will support festival demand.
Real estate players anticipate momentum in affordable housing if rates remain steady.
Startups & MSMEs want liquidity support to offset higher compliance and logistics costs.

Investor Psychology: Beyond the Numbers

At the heart of today’s announcement lies the confidence factor. Markets want assurance that the RBI remains both vigilant and flexible. As one Mumbai-based fund manager put it, “We don’t just trade the repo rate; we trade the tone.”

Conclusion: Balancing Act Continues

As India charts its growth trajectory amid global uncertainty, the RBI’s October policy is less about the headline repo rate and more about the narrative it weaves: