RBI keeps repo rate unchanged at 5.5% amid easing inflation, resilient growth
The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC), in its 56th meeting held from August 4 to 6, 2025, decided to maintain the policy repo rate at 5.5%, reflecting a cautious yet balanced approach toward India’s growth-inflation dynamics. The decision, taken unanimously under the chairmanship of RBI Governor Sanjay Malhotra, aims to support domestic economic recovery while ensuring price stability.
Consequently, the Standing Deposit Facility (SDF) rate remains at 5.25%, while the Marginal Standing Facility (MSF) rate and the Bank Rate are unchanged at 5.75%.
Inflation outlook turns more favourable
Headline CPI inflation dropped to a 77-month low of 2.1% year-on-year in June 2025 — driven by a sharp decline in food prices, especially vegetables, which even entered deflationary territory. Food inflation printed at -0.2% in June, marking the first negative reading since February 2019.
The RBI revised its FY26 inflation projection down to 3.1%, with Q2 at 2.1%, Q3 at 3.1%, and Q4 climbing to 4.4% — reflecting some upside risks in the latter part of the year due to base effects and demand-side pressures. CPI inflation for Q1 of FY27 is expected to rise further to 4.9%.
Despite this moderation, core inflation — which excludes food and fuel — inched up to 4.4% in June, partly due to rising gold prices. The MPC noted that while headline inflation appears under control, underlying price pressures in core categories warrant close monitoring.
Growth projections maintained at 6.5%
The MPC retained its forecast for real GDP growth at 6.5% for FY26, with quarterly projections as follows:
- Q1: 6.5%
- Q2: 6.7%
- Q3: 6.6%
- Q4: 6.3%
Growth is being supported by strong rural demand, buoyant government capital expenditure, and the resilient services and construction sectors. A favourable southwest monsoon and rising capacity utilisation have also reinforced momentum. However, the industrial sector remains uneven, dragged by weak performance in electricity and mining.
The central bank flagged uncertainties from global trade negotiations, tariffs, and geopolitical tensions as key downside risks to the external demand outlook.
Rationale for pause
The MPC highlighted that the recent softening in inflation was largely due to volatile food prices, cautioning that inflation is expected to edge above the 4% mark by Q4. Core inflation trends, coupled with evolving external headwinds, suggest that a pause is prudent for now.
Additionally, the MPC noted that the full impact of the 100 basis points of rate cuts since February 2025 is still playing out. With monetary transmission ongoing, the committee chose to wait and watch.
“On balance, the current macroeconomic conditions, outlook and uncertainties call for continuation of the policy repo rate at 5.5% and wait for further transmission,” the committee said in its official resolution.
The MPC has decided to retain its “neutral” stance, reiterating its commitment to act as warranted by incoming data. The minutes of this meeting will be released on August 20, 2025.
The next MPC meeting is scheduled from September 29 to October 1, 2025.
