MPC holds repo rate at 5.5%, maintains GDP growth at 6.5%, inflation projected at 3.1%

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Wednesday voted to maintain the policy repo rate at 5.50% and continue with its neutral stance after assessing the current and evolving macroeconomic situation.

Consequently, the standing deposit facility (SDF) rate under the liquidity adjustment facility (LAF) remains unchanged at 5.25% and the marginal standing facility (MSF) rate and the bank rate at 5.75%.

This decision is towards achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.

The MPC took note that the global environment continues to be challenging. Although financial market volatility and geopolitical uncertainties have abated somewhat from their peaks in recent months, trade negotiation challenges continue to linger.

Global growth, though revised upwards by the IMF, remains muted. The pace of disinflation is slowing down, with some advanced economies even witnessing an uptick in inflation, it noted.

In this backdrop, the domestic growth remains resilient and is broadly evolving along the lines of our assessment, it stated. However, the prospects of external demand remain uncertain amid ongoing tariff announcements and trade negotiations. The headwinds emanating from prolonged geopolitical tensions, persisting global uncertainties, and volatility in global financial markets pose risks to the growth outlook, it observed.

Taking various factors into account, the projection for real GDP growth for 2025-26 has been retained at 6.5%, with Q1 at 6.5%, Q2 at 6.7%, Q3 at 6.6% , and Q4 at 6.3%.

Real GDP growth for Q1:2026-27 is projected at 6.6%. The risks are evenly balanced.

Stating that CPI headline inflation declined for the eighth consecutive month to a 77-month low of 2.1% (y-o-y) in June 2025, the MPC observed that this was driven primarily by a sharp decline in food inflation led by improved agricultural activity and various supply side measures.

However, core inflation, which remained within a narrow range of 4.1-4.2% during February-May, increased to 4.4% in June, driven partly by a continued increase in gold prices, it stated adding that the inflation outlook for 2025-26 had become more benign than expected in June.

Considering various factors, CPI inflation for 2025-26 has been projected at 3.1% [as compared with 3.7% previously] with Q2 at 2.1%; Q3 at 3.1% ; and Q4 at 4.4% . CPI inflation for Q1:2026-27 is projected at 4.9%. The risks are evenly balanced.

“Despite a challenging external environment, the Indian economy is navigating a steady growth path with price stability,” RBI Governor Sanjay Malhotra said in his Monetary Policy statement.

“Monetary policy has appropriately used the policy space created by the benign inflation outlook to support growth without compromising on the primary objective of price stability. Transmission of our recent policy actions to the broader economy is underway,” he said.

“As the Indian economy strives to attain its rightful place in the global economy, stronger policy frameworks across domains, and not just limited to monetary policy, will be pivotal in its journey,” he stated.

“We, on our part, will continue to be agile and proactive in providing a facilitative monetary policy based on incoming data and the evolution of the growth-inflation dynamics. As always, we will have a clear, consistent and credible communication backed by actions necessary for the task at hand,” he concluded.