The Reserve Bank of India (RBI) on Wednesday kept its key repo rate unchanged at 5.50%, RBI Governor Sanjay Malhotra announced. The move was widely expected, as policymakers opted to wait and assess the impact of recent rate cuts amid growing global trade uncertainties.
The six-member rate-setting panel held the policy rate with a unanimous vote and decided to continue with a “neutral” stance.
The Monetary Policy Committee (MPC), which met on August 4, 5, and 6, carefully reviewed the latest economic and financial conditions before taking this decision.
The governor said all six members of the MPC voted unanimously to maintain the repo rate under the Liquidity Adjustment Facility at 5.5 per cent.
Sanjay Malhotra said, “After a detailed assessment of the evolving macroeconomic and financial developments and outlook, the MPC voted unanimously to keep the policy record under the Liquidity Adjustment Facility unchanged at 5.5 per cent.This comes after the MPC had reduced the repo rate by 50 basis points to 5.5 per cent in the previous policy meeting held in June.
The reason for the earlier rate cut was the easing of inflation. Earlier, he said that both near-term and medium-term inflation levels are now within the RBI’s comfort zone. He also highlighted that food inflation has remained soft, which gives the central bank more flexibility in its decisions.
Sanjay Malhotra said global trade challenges continue to linger, but prospects for the Indian economy remain “bright”.
While headline inflation is much lower than expected, it is largely due to volatile food prices and is set to rise towards the end of the year, Malhotra said.
The RBI has cut the policy repo rate by 100 basis points so far in 2025 as price pressures eased.
A majority of economists see room for limited further easing, but some say that low inflation and global uncertainties could prompt another 50 basis points in rate cuts, news agency Reuters reported.
India faces the imposition of a 25% tariff on Indian shipments to the US from Friday, and warned of “very substantial” additional levies because of New Delhi’s oil imports from Russia. Indian government officials have said negotiations over a trade deal with the US are continuing but hit back against criticism of its oil purchases from Russia.
Unexpected weakness in US jobs data has led to increased calls for a rate cut from the US Federal Reserve, with markets pricing in an 88% odds of a rate cut in September.
The RBI left its economic growth forecast unchanged at 6.5%, even though economists have said the higher tariffs could shave off up to 40 basis points from that level, while stunting business investment.
(With inputs from agencies)
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