The Reserve Bank of India on Wednesday kept its policy interest rate unchanged as monetary policy makers took cognisance of India’s growth and inflation prospects amid global uncertainties.

The six-member monetary policy committee, headed by RBI governor Sanjay Malhotra, held the repurchase rate (repo) — the rate at which the central bank lends to commercial banks — at 5.5 per cent in a unanimous vote and decided to continue with a ‘neutral’ stance.

Explaining the rationale behind holding the rates, the MPC said in the Monetary Policy statement that the headline inflation has been much lower than projected earlier, due to volatile food prices, while core inflation has remained steady at around 4 per cent.

At the same time, economic growth has been strong, even as the uncertainties of tariffs are still evolving. Further, the impact of the 100 basis point rate cut between February and June is still unfolding.

“The current macroeconomic conditions, outlook and uncertainties call for continuation of the policy repo rate of 5.5 per cent and wait for further transmission of the front-loaded rate cuts to the credit markets and the broader economy. Accordingly, the MPC unanimously voted to keep the repo rate unchanged.

“The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path. Accordingly, all members decided to continue with the neutral stance,” the monetary policy statement said.

With inflation projected to inch up, economists see limited room for a cut in the policy rate going forward, unless the growth momentum is significantly impacted.

“We project the CPI inflation to rise above 4 per cent in Q4FY26 and average above 4.5 per cent in FY27, given the low base this year,” said Rajani Sinha of CareEdge.

“Given the inflation projections, the space for another 25-50 basis points rate cut remains in place, although the RBI would exercise that only if there is a significant downside risk to growth, both due to domestic activity performance and the tariff impact,” said Sakshi Gupta of HDFC Bank.

Ongoing transmission

The RBI governor said that a comfortable liquidity position in the banking system has reinforced has reinforced transmission of the policy repo rate cuts to the money, bond and credit markets during the current easing cycle.

“In the credit market, the weighted average lending rate of scheduled commercial banks declined by 71 basis points for fresh rupee loans (of which 55 basis points is due to interest rate reduction) and 39 basis points for outstanding rupee loans from February 2025 to June 2025.

“On the deposit side, the weighted average domestic term deposit rate on fresh deposits moderated by 87 basis points. Moreover, the transmission to lending rates has been broad-based across sectors,” the governor said.

The governor added that an internal working group of the RBI has recommended the continuation of overnight weighted average call rates as the operating target of monetary policy.