The Reserve Bank of India (RBI) on Wednesday kept the key policy repo rate unchanged at 5.5 per cent, retaining its neutral stance after three successive rate cuts, and revised its inflation forecast for 2025-26 down to 3.1 per cent from 3.7 per cent, while maintaining its GDP growth projection at 6.5 per cent.
Announcing the third bi-monthly monetary policy of the current fiscal, RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) unanimously decided to hold the short-term lending rate steady.
"Growth is robust and as per projections, though it is below our aspirations. The uncertainties of tariffs are still evolving. Monetary policy transmission is continuing. The impact of the 100 bps rate cut since February 2025 on the economy is still unfolding," he said.
Malhotra noted that "the above normal southwest monsoon, lower inflation, rising capacity utilisation, and congenial financial conditions continue to support domestic economic activity," adding that supportive monetary, regulatory, and fiscal policies, including robust government capital expenditure, should boost demand. The services sector is expected to remain buoyant, with sustained growth in construction and trade.
He said domestic growth is holding up broadly along earlier assessments despite mixed signals from some high-frequency indicators in May-June. While rural consumption remains resilient, urban consumption revival — especially discretionary spending — is still tepid. Headwinds from prolonged geopolitical tensions, persisting global uncertainties, and volatility in global financial markets continue to pose risks.
"Taking all these factors into account, real GDP growth for 2025-26 is projected at 6.5 per cent, with Q1 at 6.5 per cent, Q2 at 6.7 per cent, Q3 at 6.6 per cent, and Q4 at 6.3 per cent," Malhotra said, adding that real GDP growth for Q1 2026-27 is projected at 6.6 per cent, with risks evenly balanced.
On prices, Malhotra said Consumer Price Index (CPI) inflation had eased for the eighth straight month to a 77-month low of 2.1 per cent in June, driven by a sharp drop in food inflation. "The inflation outlook for 2025-26 has become more benign than expected in June," he noted.
The RBI now projects CPI inflation at 3.1 per cent for 2025-26, with Q2 at 2.1 per cent, Q3 at 3.1 per cent, and Q4 at 4.4 per cent. Retail inflation for Q1 2026-27 is projected at 4.9 per cent.
Since February 2025, the RBI has cut the repo rate by a cumulative 100 basis points — 25 bps each in February and April, and 50 bps in June — amid easing retail inflation, which has stayed below 4 per cent since February.
Food inflation fell to (-)1.06 per cent in June from 0.99 per cent in May, led by lower prices of vegetables, pulses, meat and fish, cereals, sugar, milk, and spices.
Malhotra emphasised that as India strives to secure its rightful place in the global economy, "stronger policy frameworks across domains, and not just limited to monetary policy, will be pivotal in its journey."
The six-member MPC comprises RBI officials Sanjay Malhotra (Governor), Poonam Gupta (Deputy Governor), and Rajiv Ranjan (Executive Director), along with external members Nagesh Kumar, Saugata Bhattacharya, and Ram Singh.