Reserve Bank of India (RBI) has kept the key repo rate unchanged at 5.50% in its August policy review. This decision was expected by most economists and market experts.
Key Policy Rates
- Repo Rate: 5.50% (unchanged)
- Reverse Repo Rate: 3.35% (unchanged)
- Standing Deposit Facility (SDF): 5.25%
- Marginal Standing Facility (MSF): 5.75%
- Cash Reserve Ratio (CRR): 4.00% (unchanged)
RBI’s Outlook on Inflation and Growth
The RBI Governor stated that headline inflation has eased, mainly due to falling food prices. However, inflation may rise again in the second half of this financial year.
Core inflation has remained steady, and the central bank expects it to stay slightly above 4%.
Inflation Forecast (CPI)
- FY26: 3.1% (down from 3.7%)
- Q2 FY26: 3.1%
- Q3 FY26: 3.1%
The growth outlook remains positive. RBI expects India’s economy to grow steadily, though current growth is still below national aspirations.
GDP Growth Forecast
- FY26: 6.5% (unchanged)
- Q1 FY26: 6.5%
- Q2 FY26: 6.7%
- FY27: 6.6%
What RBI Governor Said
- Geopolitical risks have reduced slightly
- Global trade issues are still a concern
- India’s economy has good medium-term prospects
- Monetary policy is being transmitted well across sectors
- Inflation drop is mainly due to food prices, not broad-based
- Growth is strong but still below targets
- Urban spending is weak, but rural demand and construction are holding up
- Services sector remains stable and buoyant
- CAD (Current Account Deficit) is under control
- India’s foreign direct investment remains strong
- Liquidity conditions are expected to improve with the recent CRR cut
- New liquidity framework to be released for consultation soon
RBI Stays Cautious Amid Tariffs and Currency Worries
The Reserve Bank of India (RBI) has decided to pause rate changes for now, choosing to closely monitor the impact of U.S. tariffs on India’s already slowing economy. Despite inflation dropping to its lowest point in over six years in June, the RBI is taking a cautious stance due to global uncertainties, a hawkish U.S. Federal Reserve, and the recent weakness in the rupee. RBI Governor Malhotra noted that the central bank will keep a close eye on economic data and inflation trends before deciding the next steps.
The inflation outlook has improved compared to earlier expectations, helped by a good monsoon and healthy sowing activity, which should ease food prices. While inflation may slightly rise above 4% early next year, the overall trend is still seen as manageable. Experts believe any future rate cuts would depend mainly on how inflation and growth perform, with limited room left—just 25–50 basis points. On liquidity, the RBI said it will continue to respond flexibly, and reaffirmed that the weighted average call rate will remain its main policy tool.
RBI Chief Malhotra on India’s Economy and Inflation
RBI Chief Malhotra said that global problems have already been considered while making India’s growth forecast. However, it is still hard to say how future global events will affect the economy. He said the RBI’s policy changes are still working their way through the system, and the central bank will do whatever is needed to support good growth. He also explained that about half of India’s inflation comes from food prices, which are not heavily affected by global issues. So, global trade tensions may not have a big impact on India’s inflation.
Malhotra said both core and overall inflation are important, but some price changes caused by temporary reasons should not worry us too much. He also mentioned that housing loans are doing well even though there is a small slowdown, and banks have enough money to support the economy. It is too early to know how global trade tensions will affect foreign investments in India, but he remains hopeful. He said India’s goal is to grow more than 6.5% in the coming years.
Market Reaction
- USD/INR: Stable at 87.73
- 10-Year Bond Yield: Up to 6.3701%
- Forward Premium (July): Slightly higher at 1.75 INR
Conclusion
The RBI continues its neutral stance while closely watching inflation and growth trends. With inflation under control and growth steady, the central bank believes there is no need for a rate change right now. However, the RBI remains ready to adjust policy if economic conditions change.
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