The Reserve Bank of India has opted to keep its benchmark repo rate unchanged at 5.25%, a move that was widely anticipated. The six-member Monetary Policy Committee (MPC) voted unanimously to maintain the policy rate and to retain a "neutral" policy stance.
Governor Sanjay Malhotra highlighted several sources of global instability that influenced the central bank's assessment. He said the conflict in West Asia, lingering uncertainty around U.S. tariffs and interruptions to global trade routes and supply chains have contributed to a more unstable international economic environment, producing volatility in commodity prices, currencies and financial markets.
On inflation, the RBI said headline inflation has risen above its target as expected. It added, however, that first-quarter inflation came in slightly below what the bank had projected, a result the central bank attributed to a limited pass-through of cost pressures. The recent rise in prices was described as being driven mainly by increases in food and fuel costs, even as broader underlying inflationary pressures remained benign.
The central bank signalled that it expects inflation to move higher in the coming months, with a projected peak in the third quarter of the current financial year, before pressures ease thereafter. That outlook was cited as a key consideration for the bank as it balanced inflation risks against other economic indicators.
Against that backdrop, the RBI noted that India's economy continues to benefit from resilient domestic demand, ongoing expansion in manufacturing and services activity, and robust exports. Those supporting factors, the bank said, provide room to keep policy settings unchanged for now while it continues to closely monitor evolving inflation dynamics and external risks.
The decision to hold the repo rate comes as the Indian rupee has recovered from recent record lows. The RBI attributed the improvement in the currency to a sharp decline in oil prices and to measures the central bank announced in June aimed at attracting foreign capital and supporting the rupee.
Context and implications
The MPC's unanimous decision and the retention of a "neutral" stance indicate a cautious approach: policymakers are neither tightening nor loosening policy while they assess incoming data and global developments.