RBI holds repo rate at 5.5%, lowers inflation forecast, raises GDP growth projections
RBI now sees India's inflation rate in FY26 at 2.6% as against 3.1% earlier, and GDP growth rate at 6.8% versus 6.5% earlier.
The Reserve Bank of India (RBI) has maintained a status quo on its repo rate, while maintaining a neutral monetary policy stance, even as higher US tariffs weigh on the Indian economy.
The monetary policy committee voted unanimously to keep the repo rate steady at 5.5%, RBI Governor Sanjay Malhotra said in his policy speech on Wednesday. Earlier, 24 out of 39 economists surveyed by Bloomberg News vouched for a status quo with the rest expecting a quarter-point reduction.
The central bank has lowered rates by 100 basis points so far this year.
To be sure, macros for the Indian economy are now seen improving.
RBI now sees India's inflation rate for FY26 at 2.6% as against 3.1% earlier. The GDP growth forecast has been revised higher to 6.8% versus 6.5% earlier. That after the Indian economy grew at a stronger-than-expected 7.8% in the April-June quarter from a year earlier.
“The economic growth outlook remains resilient due to favourable monsoon, lower inflation and monetary easing,” Malhotra said in his monetary policy statement. “Domestic economic activity continues to sustain momentum in second quarter of this fiscal.”
To be sure, “tariff-related development is likely to decelerate growth in the second half of the fiscal”, the RBI governor said, but “GST and other reforms will offset impact of external factors on economic growth to some extent.”
“The Reserve Bank will remain vigilant towards incoming macroeconomic data for deciding next course of action.”
RBI Monetary Policy
The MPC is seeking to balance competing priorities—subdued inflation and growth risks from US President Donald Trump’s 50% tariffs on one side, and the rupee’s record slide on the other.
The tariffs are weighing on India’s growth prospects despite a strong performance so far this year, and have roiled local markets, prompting a sell-off in stocks by foreign investors. The rupee is down 3.6% against the dollar this year, the worst among Asian emerging peers.
The government cut GST rates to lift incomes and spur confidence. The move is likely to ease inflation, which has hovered at the lower end of the RBI’s 2%-6% target band recently.
“The rationalisation of GST will have a sobering impact on inflation, while stimulating consumption and growth,” Malhotra said.
