Mumbai: The Reserve Bank of India (RBI) on Wednesday decided to keep the benchmark repo rate unchanged at 5.25 per cent, opting for a cautious approach amid persistent global economic uncertainty, volatile crude oil prices, and geopolitical tensions in West Asia. The decision was taken unanimously by the six-member Monetary Policy Committee (MPC), chaired by RBI Governor Sanjay Malhotra, during its latest monetary policy review.
Alongside maintaining the repo rate, the central bank retained its neutral policy stance, signalling that future monetary policy decisions will continue to be guided by evolving economic conditions rather than any predetermined direction.
While announcing the policy, the RBI marginally raised India’s GDP growth forecast for FY2026-27 to 6.7 per cent, up from the earlier estimate of 6.6 per cent, reflecting confidence in the country’s economic resilience. At the same time, it slightly revised the inflation projection downward to 5 per cent from 5.1 per cent, indicating expectations that price pressures could ease over the course of the financial year despite near-term risks.
Governor Sanjay Malhotra said the central bank has adopted a wait-and-watch approach as uncertainty surrounding the global economy continues to cloud the inflation outlook. He noted that financial markets remain volatile due to the ongoing conflict in West Asia, which has significantly influenced global crude oil prices. Since India imports a large share of its crude oil requirements, sustained increases in energy prices could translate into higher transportation and manufacturing costs, potentially fuelling inflation.
According to the RBI, headline inflation has risen above its medium-term target primarily because of higher food and fuel prices. However, the central bank observed that inflationary pressures have not yet become broad-based across the economy, suggesting that underlying demand-driven inflation remains relatively contained.
The RBI expects inflation to peak during the third quarter of the current financial year before moderating gradually. Nevertheless, Governor Malhotra cautioned that considerable uncertainty persists due to factors such as the progress of the southwest monsoon, the possible emergence of El Niño conditions, geopolitical developments, and changes in global trade policies.
He emphasised that the MPC would require greater clarity regarding both the trajectory and composition of inflation before considering any change in policy rates. According to the Governor, any future policy action will have to carefully balance the need to support economic growth while ensuring inflation remains aligned with the RBI’s target.
For consumers, the decision means there is unlikely to be any immediate change in EMIs on home, vehicle, or gold loans. Banks are also expected to keep fixed deposit and savings account interest rates broadly unchanged unless they independently decide to revise their lending or deposit rates.
The RBI highlighted that India’s economy continues to display resilience despite challenging global conditions. Governor Malhotra pointed to the agriculture sector as an example, stating that government initiatives such as improved irrigation infrastructure and better availability of agricultural inputs have helped mitigate weather-related risks and strengthened rural economic activity.
The central bank also observed that supply-side disruptions caused by the West Asia conflict had eased after June, allowing temporary government measures to be withdrawn and normalcy to return in the availability of key inputs. However, renewed escalation in the region since early July has once again increased uncertainty by driving volatility in energy markets and raising concerns over disruptions in global supply chains.
Reflecting broader international trends, the RBI’s decision mirrors the cautious stance adopted by several major central banks worldwide. The US Federal Reserve also kept its benchmark interest rate unchanged in its July policy meeting, highlighting the shared challenge of managing inflation while safeguarding economic growth amid uncertain global conditions.
Governor Malhotra further flagged risks to India’s external sector, warning that slower global trade growth, elevated energy prices, and uncertainty surrounding international trade policies could widen the country’s current account deficit during FY2026-27.
On the rupee, the RBI reiterated that exchange rates would continue to be determined primarily by market forces, with the central bank intervening only to prevent excessive volatility. Malhotra said there is a possibility that the rupee could strengthen if geopolitical tensions ease and global financial conditions stabilise.
The RBI concluded that it would continue to closely monitor domestic and global developments and remain committed to ensuring price stability while supporting sustainable economic growth.
