RBI Keeps Repo Rate Unchanged At 5.5 percent, Stance Neutral

The Reserve Bank of India's Monetary Policy Committee (MPC) opted to keep the repo rate unchanged at 5.5% after front-loading a 100 basis points rate cut since the beginning of 2025. RBI Governor Sanjay Malhotra announced on Wednesday that the MPC has unanimously decided to keep the repo rate unchanged with a neutral stance.

With this, the standing deposit facility rate shall remain unchanged at 5.25% and the marginal standing facility rate and bank rate at 5.75%.

RBI Revises Inflation Estimate, Keeps GDP Estimate Unchanged

Given the significant decline in retail inflation over the past few months, the RBI MPC has revised CPI inflation estimates for the financial year 2025-26 from 3.7% to 3.1%. With the new revision, CPI inflation estimate for Q2FY26 stands at 2.1%, for Q3FY26 at 3.1%, and for Q4FY26 at 4.4%.

Meanwhile, the gross domestic product (GDP) growth estimated remained unchanged at 6.5% for FY26. On a quarterly basis, the RBI GDP growth rate estimate stood at 6.5% for Q1FY26, 6.7% for Q2 FY26, 6.6% for Q3 FY26, 6.6% for Q4FY26 and 6.6% for Q1 FY 27.

The six-member MPC, led by Governor Sanjay Malhotra, started the three-day meeting on August 4 and concluded on August 6. Along with the outcome, some commentary related to the U.S. tariffs' impact on India is expected from the RBI at the August 6 meeting.

Growth Outlook on Consumption Boost

Stressing upon private consumption boost to economic activity, Governor Sanjay Malhotra mentioned that the domestic growth remained resilient and is broadly evolving along the lines of the RBI MPC assessment.

The agricultural activity is likely to stay resilient due to a steady south-west monsoon and above-normal rainfall. Other than agricultural activity, growth in the industrial sector remained subdued and uneven across segments, pulled down by electricity and mining, said Malhotra in his RBI MPC speech.

"The above normal southwest monsoon, lower inflation, rising capacity utilization and congenial financial conditions continue to support domestic economic activity. The supportive monetary, regulatory and fiscal policies including robust government capital expenditure should also boost demand," said Governor Malhotra on Wednesday.

More than 39 out of 62 economists, who participated in the GoodReturns poll had predicted a status quo by the RBI MPC in August. The bi-monthly meeting was expected to change the inflation outlook for India. The current consumer price inflation (CPI) for India stood at a significantly low mark of 2.1% in June.

Most of the economists in the poll had predicted a status quo because RBI has already fronloaded massive rate cuts in the previous three policies.

The RBI MPC had already lowered its inflation forecast by 30 bps to 3.7% in its June meeting. Given the favourable trend in inflation, led by food, Emkay Research had expected a further decline in the inflation forecast for the overall financial year 2025-26.

"The decision follows a cumulative 100 bps rate cut earlier this year and comes as former US President Donald Trump threatens a 25% tariff on Indian exports - a move that could impact nearly $100 billion in outbound trade and shave 30 bps off FY26 GDP growth, according to analysts tracking India-US trade flows," noted Anirudh Garg, Partner and Fund Manager INVasset PMS.