GDP surprise unlikely to derail RBI's rate cut plan

The surprise 7.8% economic growth in the first three months of 2025-26 is unlikely to deter India's monetary policy panel from cutting interest rates further in October, according to economists.

- Shayan Ghosh

Monetary policy tends to be forward-looking, and since the first-quarter economic growth estimates do not fully account for the tariff shock, the Reserve Bank of India's (RBI's) monetary policy committee (MPC) is still expected to lower the repo rate in the next meeting scheduled for 29 September to 1 October, they said.

On 27 August, the President Donald Trump-led US administration imposed an additional 25% tariff on Indian goods for buying Russian oil, taking the total levy to 50%. Other than India, only Brazil faces 50% tariffs. Among India's regional peers, China faces 30% tariffs and Vietnam and Sri Lanka face 20% each, according to data compiled by financial services company Barclays.

However, given that the idea is that rate cuts support growth, an already buoyant economy makes it difficult for the rate setting panel to argue in favour of easier monetary policy.

The economy clocked a five-quarter high growth of 7.8%, according to estimates released on 29 August, beating the 6.7% projection by economists polled by Mint.