On August 6, 2025, the Reserve Bank of India (RBI) announced its decision to keep the policy repo rate steady at 5.5%, as the Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, concluded its three-day meeting. The decision reflects caution due to global trade uncertainties and fluctuating inflation trends, with the MPC opting to maintain a neutral stance to monitor the evolving economic landscape.
Inflation Trends Under Scrutiny
The RBI’s decision to hold the repo rate at 5.5% was driven by concerns over inflation dynamics, particularly the volatility in food prices. “The MPC noted that while headline inflation is much lower than projected earlier, it is mainly due to volatile food prices, especially in vegetables. Core inflation, on the other hand, has remained steady around the 4% mark as anticipated. Inflation is projected to go up from the last quarter of this financial year,” said Governor Malhotra.
The central bank remains vigilant, noting that while inflation has cooled recently, an uptick is expected toward the end of the fiscal year. This cautious approach underscores the RBI’s commitment to balancing price stability with economic growth.
Economic Growth Stable but Faces Risks
Despite robust economic growth, the RBI acknowledged that it has fallen short of earlier projections, partly due to global trade uncertainties. “Growth is robust and as our earlier projections go, of course, below our expectations. The uncertainties of tariffs are still evolving. Monetary policy transmission is continuing,” Malhotra stated.
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The RBI highlighted that the impact of the 100-basis points repo rate cut implemented since February 2025 is still unfolding across the economy. The central bank is adopting a wait-and-watch approach to assess how these reductions influence borrowing costs and broader economic activity. “On balance, therefore, the current macroeconomic conditions, outlook and the uncertainties call for continuation of the policy repo rate of 5.5% and wait for further transmission of the front-loaded rate cut to the credit markets and to the broader economy,” the Governor added.
The MPC also decided to keep the Standing Deposit Facility rate at 5.25% and the Marginal Standing Facility rate and Bank Rate at 5.75%, maintaining a neutral stance to closely monitor incoming data. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, noted, “With inflation likely to trend higher post the near-term favorable trends, the bar for rate cuts ahead is set very high. We can see some room for the last leg of easing only if growth momentum slows significantly.”
