RBI keeps repo rate unchanged at 5.25%; retains 'neutral' policy stance

The Reserve Bank of India held the repo rate at 5.25 per cent for a third straight review, raising its inflation forecast while warning of risks from the prolonged West Asia conflict

The six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday unanimously decided to keep the repo rate unchanged at 5.25 per cent and retain the monetary policy stance at neutral.

 

The MPC had cut the policy repo rate by a cumulative 125 basis points in 2025. This is the third consecutive policy review in which the repo rate has been left unchanged.

 

RBI Governor Sanjay Malhotra said that as the West Asia conflict prolongs without any meaningful resolution in sight, risks to both inflation and growth have increased.

 

RBI has raised its Consumer Price Index (CPI) inflation forecast for FY27 to 5.1 per cent from 4.6 per cent projected earlier, with quarterly projections of 4.2 per cent in Q1, 5.1 per cent in Q2, 5.9 per cent in Q3, and 5.4 per cent in Q4.

 

 

Headline CPI inflation rose to 3.4 per cent in March and 3.5 per cent in April 2026, primarily due to higher food inflation. Core inflation, excluding food and fuel, remained unchanged at 3.7 per cent during January-April.

 

The MPC statement said input cost pressures reflected in the sharp rise in wholesale inflation have not yet fully manifested in consumer prices. It noted that retail fuel prices have increased by 7.4 per cent for petrol and 8.4 per cent for diesel since May, which could have a direct impact of around 36 basis points on headline inflation, along with second-round effects in the coming months.

 

"The second-round impact of higher input costs could exert upside pressure on CPI inflation going forward," the MPC statement said.

 

On growth, the RBI projected real gross domestic product (GDP) growth for FY27 at 6.6 per cent, with Q1 at 6.6 per cent, Q2 at 6.3 per cent, Q3 at 6.5 per cent, and Q4 at 6.8 per cent.

 

The MPC statement said private consumption remains resilient, fixed investment has maintained momentum despite cost pressures, and services exports continue to be robust. However, it cautioned that elevated energy and commodity prices, continued supply disruptions, and a forecast of a deficient south-west monsoon could weigh on economic activity.

 

"Prolonged global supply chain disruptions, heightened volatility in global financial markets, and weather-related shocks continue to pose downside risks to the domestic growth outlook," the MPC statement said.

 

Explaining the policy decision, the MPC statement said the global environment has deteriorated since the April policy due to the lingering conflict and its impact on supply chains and energy prices. While inflation is projected to firm up towards the upper tolerance level in the third quarter of FY27, underlying inflation pressures remain benign at present.

 

"Although risks of higher inflation have amplified, the MPC felt it would be prudent to wait for greater clarity to emerge. Accordingly, the MPC voted to keep the policy rate unchanged," the committee said.

 

The MPC also said it would remain data-dependent and closely monitor supply-side pressures, inflation expectations, and the evolving growth-inflation outlook.