The Reserve Bank of India (RBI) has chosen to maintain the policy repo rate at 5.5%, opting for stability as the Monetary Policy Committee (MPC), headed by Governor Sanjay Malhotra, wrapped up its three-day review on Wednesday. The decision reflects a cautious approach in balancing growth prospects with external uncertainties.
Announcing the outcome, Governor Malhotra said the MPC unanimously voted to keep rates unchanged, with the Standing Deposit Facility (SDF) at 5.25%, and both the Marginal Standing Facility (MSF) and Bank Rate at 5.75%, while retaining a neutral policy stance.
Inflation Outlook Eases
Malhotra underlined that inflation has softened far more than anticipated in recent months, largely due to easing food prices and GST rate cuts. The RBI revised its average headline inflation forecast for FY25 down to 2.6%, from 3.7% projected in June and 3.1% in August.
“Inflation conditions are likely to remain benign in 2025-26, supported by healthy monsoon rainfall, strong crop sowing, good reservoir levels and sufficient grain stocks,” he said. CPI inflation is expected at 2.6% for FY25, with quarterly projections of 1.8% in Q2 and Q3, 4% in Q4, and 4.5% in Q1 of the next fiscal year.
Growth Projections Hold Firm
On growth, the central bank forecast real GDP at 6.8% for FY26, breaking down quarterly estimates as: Q2 at 7%, Q3 at 6.4%, Q4 at 6.2%, and Q1 of the next fiscal year at 6.4%. Malhotra noted that domestic drivers continue to support resilience, while factors such as a favourable monsoon, easing inflation, monetary support and GST reforms are likely to boost activity further.
“Growth outlook remains resilient, but still below aspirations. Global headwinds, including trade frictions and tariffs, could weigh on the second half of the year,” he cautioned.
Why RBI Held Rates
The MPC highlighted that policy rates had already been reduced earlier this year by 100 basis points, and their impact, alongside government reforms in GST and income tax slabs, is still filtering through the economy.
“The committee felt it prudent to wait for existing measures to fully play out before initiating further action,” Malhotra explained. He also flagged external risks such as rising US tariffs, rupee depreciation, and global trade uncertainties, which could affect exports and capital flows.
Despite these challenges, the RBI expressed confidence in India’s ability to withstand shocks, thanks to robust domestic demand, healthy farm prospects, and steady government spending.
Commenting on the move, Dr. Manoranjan Sharma, Chief Economist at Infomerics Ratings, said:
“By refraining from immediate rate cuts, the RBI has adopted a balanced, forward-looking strategy. Keeping a neutral stance allows flexibility to respond to inflationary pressures while supporting sustainable growth.”
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