RBI holds repo rate, says uncertainty of US tariffs 'still evolving'

Policy-setting committee continues with neutral stance as governor says Indian economy holds bright prospects

The Reserve Bank of India (RBI) kept the repo rate steady at 5.50 per cent on Wednesday, in line with expectations and continued with a neutral stance as policymakers waited to see the impact of recent rate cuts and assessed risks from higher-than-expected US tariffs.

 

The six-member monetary policy committee (MPC), led by by RBI Governor Sanjay Malhotra, had changed the stance to neutral in June from accommodative. While the Indian economy holds bright prospects, global trade challenges continue to linger, Malhotra said in his monetary policy statement in Mumbai. “The uncertainty of tariffs is still evolving.”

 

The transmission of monetary policy is ongoing, and the full impact of the 100 basis points rate cut since February 2025 is still playing out. Given current economic conditions and uncertainties, the RBI will keep the repo rate unchanged at 5.5 per cent and wait for the effects of the earlier rate cuts to be fully reflected in credit markets and the broader economy, he said. 

 

 

The RBI revised its inflation forecast for FY26 to 3.1 per cent, down from 3.7 per cent projected in June, citing a continued decline in food prices and headline inflation remaining well below the target.

 

India’s retail inflation, as measured by the Consumer Price Index, eased to 2.1 per cent in June 2025, down from 2.82 per cent in May. This marked the lowest year-on-year inflation rate since January 2019, when it stood at 2.05 per cent. June’s reading also remained well below the RBI’s medium-term target of 4 per cent, extending the recent trend of subdued price pressures.

   

The RBI retained its growth forecast for FY26 unchanged at 6.5 per cent. It expects growth of 6.5 per cent in the first quarter, 6.7 per cent in the second, 6.6 per cent in the third, and 6.3 per cent in the fourth quarter. For the first quarter of FY27, real GDP growth is projected at 6.6 per cent.

 

Malhotra said that domestic growth remains stable and is broadly progressing in line with our expectations. While some high-frequency indicators showed mixed trends in May and June, rural consumption continues to be resilient. However, the recovery in urban consumption, particularly discretionary spending, remains subdued.