RBI MPC Keeps Repo Rates Unchanged At 5.5%, Maintains 'Neutral' Stance Amid Tariff Uncertainties

The Reserve Bank of India's Monetary Policy Committee has kept the benchmark lending rates unchanged, which is in-line with the expectations. The country's central bank also maintained its 'neutral' stance.

The rate-setting panel of RBI, which concluded its three-day meeting on Wednesday, retained the repo rate at 5.5% in a unanimous decision. This comes after a 50 basis points reduction in its June policy review meeting.

The uncertainties of tariffs are still 'evolving' and the monetary policy transmission is 'continuing,' RBI Governor Sanjay Malhotra said, adding that The impact of the 100-basis-point rate cuts since February 2025 on the economy is still unfolding.

A poll of economists by news agency Bloomberg had projected that the rates would be held steady by the MPC as part of its August review. However, there were chances of a rate cut in the backdrop of retail inflation undershooting RBI's estimates, mixed high-frequency indicators and fresh headwinds from US President Donald Trump's tariff policy.

Trump, last week, announced a 25% tariff on India, alongside an unspecified amount of "additional penalty" due to the country's purchase of Russian crude and military equipment. On Tuesday, Trump threatened to raise the tariffs "substantially" over the next 24 hours.

Lingering trade tensions imply downside risks to growth, which could compel the RBI to further ease its policy going forward, according to economists.

The projected GDP growth at 6.5% in the first quarter of the ongoing fiscal, 6.7% in the second quarter, and 6.6% in the third quarter, Malhotra said, adding that growth for the first quarter of the next fiscal is seen at 6.6%.

The central bank said domestic demand is supported by rural consumption and government capital spending. Kharif sowing is progressing well, backed by a steady monsoon, Malhotra said, adding that the industrial growth, however, remained subdued, pulled down by weakness in electricity and mining.

The RBI also noted risks to growth from global trade tensions, tariff uncertainties, and geopolitical developments but said the outlook remains balanced.

The RBI lowered its inflation forecast to 3.1% for the fiscal 2025-26, down from 3.7%. It expects inflation to be 2.1% in the second quarter, 3.1% in the third quarter, and 4.4% in the fourth quarter, Governor Malhotra said, adding that the central bank noted that fourth-quarter CPI inflation is likely to remain higher due to base effects and sustained demand, while favourable trajectory overall.

Since the last MPC meeting in June, inflation readings and the trajectory looks to be lower. Consumer price index-based inflation moderated to 2.1% in June, from 2.8% in May, according to data from the statistics ministry. This was also the fifth straight month when inflation was below the Reserve Bank's 4% target.