RBI’s October Policy: A Cautious “Hold”
Thank you for reading this post, don't forget to subscribe!Based on insights from experts at HDFC Bank and ICICI Bank, the Reserve Bank of India (RBI) is likely to hold its policy rates steady in October. The decision on a potential rate cut may be pushed to December, depending on economic trends and global factors.
Key Takeaways from the Experts
On RBI Policy:
- HDFC Bank’s Arup Rakshit believes a rate cut is unlikely in October due to ongoing geopolitical uncertainty and tight liquidity conditions. He suggests the RBI will re-evaluate in December.
- ICICI Bank’s Shailendra Jhingan, on the other hand, sees “scope to cut rates,” citing inflation that is running well below the RBI’s 4% target.
On Liquidity:
- While Rakshit noted that liquidity has “tightened temporarily,” Jhingan pointed out a “huge surplus of ₹5 trillion” in core liquidity. Both experts agree that open market operations (OMOs) could be used later if needed.
On Government Borrowing:
- The government is set to borrow ₹6.82 lakh crore in the second half of FY26. Rakshit is confident they will manage this amount.
- Jhingan added that the government has strong buffers, including higher small savings and the RBI’s dividend, to prevent any borrowing shortfalls.
On Inflation and Growth:
- Jhingan projects the current average inflation at a low 2.4% and sees core inflation potentially falling to 3%.
- He also forecasts a 7% real GDP growth for the year but warns that slowing nominal growth, which has dropped from 14% to a projected 8.5%, is a trend that policymakers should closely watch.
On the Bond Market:
- Both experts observed weakening demand for long-tenure bonds. Jhingan noted that investors are favoring equities, while Rakshit suggested that shifting some bond supply to the five-to-seven-year bucket could help boost demand and ease yields.
