In simpler terms, growth is likely to dip further when the Q2 data is revealed later on in the year.
As the Reserve Bank of India’s Monetary Policy Committee announces its bi-monthly policy review on October 4, it would know that the Indian economy is facing its worst slowdown since the dip in economic activity following the global financial crisis of 2008-09. As this chart from Care Ratings shows, economic growth has been decelerating for the past five quarters ( that’s the last 15 months).
Yet, from RBI’s perspective, thankfully, at least the inflation rate (that is the rate of increase in prices) – both at wholesale (WPI) and retail (CPI) levels – has been well under control.
That is why, since the start of this calendar year, the RBI has been able to aggressively cut the benchmark repo rate – the rate at which it lends to the banking system. A repo rate cut brings down the costs of raising funds for the banking system and signals a cut across the board.
However, despite cutting the repo rate by 110 basis points – 100 basis points equal one percentage point – since February, RBI has not been able to get banks to pass through the full cut; the pass-through has been just about 40 basis points. That’s because the repo rate is not the most important determinant of the cost of funds for banks. The bigger determinants are the rate of interest banks pay depositors and the rate of interest that depositors earn on small savings schemes such as the Sukanya Samriddhi Yojana or the public provident fund that the government runs. The fact that banks, especially the public sector ones, have been struggling with a mountain of loans that went bad did not help matters as each quarter banks had to redirect their profits (which would have otherwise helped them lend to new businesses) towards plugging the gap made by such non-performing assets.
What is likely to happen on October 4 policy review?
Notwithstanding the lack of transmission in the past, the RBI is likely to cut repo rate by anywhere between 35 to 40 basis points. That’s for a variety of reasons.
One, inflation is under control and there is room to reduce interest rates without fueling a surge in the price level. Two, if the transmission is weak, a deeper cut is required to achieve the goal. Three, the government has just cut corporate tax rates in its bid to incentivise more investments; cutting interest rates will further help that goal as it would make it cheaper to borrow money. Lastly, as with many banks now willing to link the interest rates on new loans to the repo rate, a larger rate cut will help in quicker transmission of rate cuts,” says Suvodeep Rakshit, Vice President & Sr. Economist, Kotak Institutional Equities.
Will it help to boost economic activity?
A cut in repo rate cannot make matters worse; it can only help at this juncture even though even Chetan Ghate, a member of the RBI’s MPC, has questioned how far can rates be cut. That’s because the broader momentum of the economy is downhill and it is possible that in the second quarter of the financial year – that is, July-September – witnesses just as weak an economic growth as in Q1, when GDP grew by only 5 per cent.
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The chart from Nomura research alongside maps Nomura’s monthly activity index (MAI), which is a weighted average of nineteen high-frequency indicators. It is meant to gauge underlying economic momentum. According to a recent report by Nomura research, “growth of Nomura’s MAI has been moderating since H2 2018… it is now below the trough hit during the global financial crisis.”
In simpler terms, growth is likely to dip further when the Q2 data is revealed later on in the year.
Udit Misra is Senior Associate Editor at The Indian Express. Misra has reported on the Indian economy and policy landscape for the past two decades. He holds a Master’s degree in Economics from the Delhi School of Economics and is a Chevening South Asia Journalism Fellow from the University of Westminster.
Misra is known for explanatory journalism and is a trusted voice among readers not just for simplifying complex economic concepts but also making sense of economic news both in India and abroad.
Professional Focus
He writes three regular columns for the publication.
ExplainSpeaking: A weekly explanatory column that answers the most important questions surrounding the economic and policy developments.
GDP (Graphs, Data, Perspectives): Another weekly column that uses interesting charts and data to provide perspective on an issue dominating the news during the week.
Book, Line & Thinker: A fortnightly column that for reviewing books, both new and old.
Recent Notable Articles (Late 2025)
His recent work focuses heavily on the weakening Indian Rupee, the global impact of U.S. economic policy under Donald Trump, and long-term domestic growth projections:
Currency and Macroeconomics:
"GDP: Anatomy of rupee weakness against the dollar" (Dec 19, 2025) — Investigating why the Rupee remains weak despite India's status as a fast-growing economy.
"GDP: Amid the rupee's fall, how investors are shunning the Indian economy" (Dec 5, 2025).
"Nobel Prize in Economic Sciences 2025: How the winners explained economic growth" (Oct 13, 2025).
Global Geopolitics and Trade:
"Has the US already lost to China? Trump's policies and the shifting global order" (Dec 8, 2025).
"The Great Sanctions Hack: Why economic sanctions don't work the way we expect" (Nov 23, 2025) — Based on former RBI Governor Urjit Patel's new book.
"ExplainSpeaking: How Trump's tariffs have run into an affordability crisis" (Nov 20, 2025).
Domestic Policy and Data:
"GDP: New labour codes and opportunity for India's weakest states" (Nov 28, 2025).
"ExplainSpeaking | Piyush Goyal says India will be a $30 trillion economy in 25 years: Decoding the projections" (Oct 30, 2025) — A critical look at the feasibility of high-growth targets.
"GDP: Examining latest GST collections, and where different states stand" (Nov 7, 2025).
International Economic Comparisons:
"GDP: What ails Germany, world's third-largest economy, and how it could grow" (Nov 14, 2025).
"On the loss of Europe's competitive edge" (Oct 17, 2025).
Signature Style
Udit Misra is known his calm, data-driven, explanation-first economics journalism. He avoids ideological posturing, and writes with the aim of raising the standard of public discourse by providing readers with clarity and understanding of the ground realities.
You can follow him on X (formerly Twitter) at @ieuditmisra
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In simpler terms, growth is likely to dip further when the Q2 data is revealed later on in the year.
