RBI Keeps Repo Rate Steady at 5.5% Amid Global Trade Uncertainty

In a widely anticipated move, the Reserve Bank of India (RBI) has decided to keep the benchmark repo rate unchanged at 5.5% during its monetary policy review held on August 6. The decision by the RBI’s Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, was unanimous and consistent with recent forecasts by economists. The central bank also opted to maintain its neutral policy stance as it continues to assess both domestic economic indicators and the evolving global trade tensions triggered by U.S. President Donald Trump’s latest tariff threats.

Governor Sanjay Malhotra, while addressing the media, stated, “On balance, the current macroeconomic conditions, outlook, and uncertainties call for continuation of the policy repo rate of 5.5 percent and a pause to allow the front-loaded rate cuts to percolate through the credit markets and the broader economy. Accordingly, the MPC unanimously voted to keep the repo rate unchanged.”

He added that the Indian economy retains “bright prospects” in the medium term, supported by its inherent strengths, stable macroeconomic fundamentals, and sufficient economic buffers. Malhotra stressed the coordinated monetary tools at the RBI’s disposal would support smooth transmission during the current easing cycle. On the international front, the governor confirmed the central bank is closely watching the developments regarding the United States’ evolving tariff actions, which have added uncertainty to the global trade environment.

RBI repo rate decision reflects careful approach amid domestic resilience

The decision to hold rates steady is in line with predictions made in a Moneycontrol poll of top economists. It comes after the RBI implemented a surprise 50 basis point cut in the previous bi-monthly policy in June, bringing the total rate cut since February to 100 basis points.

Inflation data continues to remain favorable, with the RBI revising its Consumer Price Index (CPI) inflation forecast downward from 3.7% to 3.1% for the current fiscal year, driven by lower food inflation. Governor Malhotra noted that the inflation outlook in the short term has become “more benign” than previously expected. However, he warned that CPI inflation could rise above the 4% target in the fourth quarter of FY26.

On the growth front, the RBI retained its GDP growth projection at 6.5% for FY26, citing that the domestic economy is “holding up” in line with the central bank’s assessment, despite some high-frequency indicators giving mixed signals in May and June.

Malhotra also highlighted the positive impact of the June policy’s reduction in the cash reserve ratio (CRR), which is expected to boost liquidity further. “We will maintain adequate liquidity in the banking system so that the productive needs of the economy are met and the transmission to credit markets remains smooth,” he added.

An internal working group has been set up to review the liquidity management framework, and its report will soon be released for public consultation.

RBI repo rate decision shaped by Trump’s tariff shock and global uncertainty

The central bank’s decision arrives at a delicate time for India’s trade position. U.S. President Donald Trump has recently imposed a 25% tariff on Indian exports, along with additional penalties. He has also hinted at a potential “substantial increase” in duties, claiming India is helping fund Russia’s war efforts through oil purchases and other military transactions. These developments could derail India’s growth outlook, with economists warning that the high tariffs—well above those faced by many of India’s Asian peers—could reduce India’s growth by as much as 30 basis points.

While the RBI has decided to keep rates steady, a few experts in the economist poll argued for another rate cut. They believe easing policy further could support credit growth and bolster consumer spending ahead of the upcoming festive season, especially with inflation under control.

Market reaction to the policy announcement was mixed. Bond traders were divided, interpreting the policy as lacking strong dovish cues. The benchmark 10-year bond yield rose by 4 basis points to 6.3701%, reflecting cautious optimism. Meanwhile, the rupee remained largely unchanged, trading at 87.7350 against the U.S. dollar. Equity markets, however, ended the day slightly lower, with the BSE Sensex and Nifty50 both slipping around 0.2%.

Governor Malhotra concluded by saying the RBI remains flexible and responsive in its policy approach. The central bank will continue to support the Indian economy through appropriate tools as it navigates both internal developments and global headwinds.

Get Latest News Live on MTIMES along with Breaking News and Top Headlines, Political News and around The World.

You May Like

Trending Searches Today |

NEET PG 2025 Exam Analysis: Difficulty Level, Paper Review & Good Attempts

“India Struck Pakistan Hard and Smart”: Tharoor Praises Operation Sindoor in the US

India-US Joint Mission NISAR Launched Successfully by ISRO’s GSLV-F16

Trump Signs Executive Order Imposing New Tariffs on 68 Countries, Including India Allies

Asia Cup 2025: India to Clash with Pakistan on September 14 in UAE

AI for India 2.0 Empowers Rural Youth