RBI MPC Preview: Will October Bring a Surprise Rate Cut Amid Cooling Inflation and Slowing Growth?

As the Reserve Bank of India’s Monetary Policy Committee (MPC) gears up for its October meeting, the consensus view of “no rate cut” appears driven more by the RBI’s earlier guidance in June and August than by current economic conditions. However, brokerage firm Emkay Global believes the central bank has enough reasons to depart from its stance and deliver a 25 basis points (bps) cut, followed by an open-ended easing approach.

“What the June MPC meeting taught us was that macro resets evidently need front-loaded policy action than a back-loaded one,” Emkay Global noted in its latest report.

Cooling Inflation Creates Space for Policy Easing
Inflation trends are giving the RBI more room to act. The central bank has consistently revised down its FY26 inflation estimates since April as quarterly prints undershot projections. Its current CPI forecast stands at 3.1%, but Emkay expects further cuts in the October policy.
“Ex-GST impact, we estimate FY26 headline CPI/core inflation at 2.6%/4.3% and, assuming 70% GST pass-through, headline/core is likely to track 2.1%/3.6%, with FY27E now tracking close to 4%,” Emkay highlighted.

With real policy rates potentially exceeding 3% based on average FY26 inflation, Emkay argues that the RBI’s focus on one-year-ahead inflation forecasts appears misplaced, especially as Asia trends toward a broader disinflationary cycle.

Growth Outlook Faces Structural Weakness
India’s 1Q GDP growth surprised on the upside, but Emkay cautioned that the print had “deflator noise, frontloaded US exports, and government spending.” The firm expects similar 7%+ growth in Q2 but warns of moderation in the second half of the year as tariff impacts unfold.

“FY26 nominal GDP is likely to print at sub-8%,” the report added, noting that such a scenario would require recalibration of fiscal deficit, sovereign debt, credit growth, corporate earnings, and foreign portfolio inflows.

Rupee as an Automatic Stabiliser
A key risk flagged by critics is that further rate cuts could narrow the interest rate differential with the US, increasing pressure on the already weak rupee. Emkay, however, believes a weaker rupee could act as an “automatic stabiliser” by improving India’s competitiveness amid higher tariffs and the trade war’s spillover into services.

“Such depreciation would act as a natural stabiliser for a weaker CAD, rather than being misread as a rate-easing deterrent,” the firm argued.

The Risk of Delay

“The possibility of our rate-cut call misfiring in October remains,” Emkay acknowledged, “but the case for front-loaded action is stronger than waiting.”
Despite the case for immediate easing, Emkay assigns a 30% probability that the MPC could wait until December for clarity on external headwinds, GST cuts, and the full pass-through of earlier rate reductions.

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