The six-member Monetary Policy Committee (MPC), chaired by RBI Governor Sanjay Malhotra, unanimously kept the benchmark repo rate unchanged at 5.25% and retained its neutral policy stance. The Standing Deposit Facility (SDF) rate remains at 5%, while the Marginal Standing Facility (MSF) rate and Bank Rate stay at 5.5%.
The decision marks the fourth straight policy review since the RBI’s last rate cut in December last year, underscoring the central bank’s preference to wait for “greater clarity” on inflation and global developments before making its next move.
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Why did the RBI MPC keep repo rate unchanged?
The central bank’s message was clear: inflation has risen, but not in a way that calls for an immediate policy response.
Explaining the rationale behind MPC’s decision, Malhotra said the recent increase in prices has largely been driven by food and fuel costs, while underlying inflationary pressures remain contained.
“The higher inflation is mostly on account of fuel and food with little signs of generalisation of price pressures so far. Core inflation excluding precious metals continues to be benign,” the governor said.
The MPC said it wants to see how inflation evolves before changing interest rates.
“There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action,” the committee said in its policy resolution.
While headline inflation is expected to rise further in the near term and peak during the third quarter of FY27, the RBI believes underlying demand-side price pressures remain subdued.
Also Read: RBI MPC trims FY27 inflation forecast to 5% as easing crude prices offer relief
The central bank also retained its neutral stance, giving itself flexibility to respond either way depending on how incoming data evolves.
War clouds and oil prices remain the biggest risks
The RBI acknowledged that the global backdrop has become more uncertain, with geopolitical tensions continuing to threaten inflation and growth.
The policy statement noted that the brief relief following the ceasefire in West Asia had faded as the conflict resumed, keeping global energy markets on edge.
According to the MPC, conflict in West Asia, volatile crude oil prices, sticky inflation expectations and fragile public finances in major economies continue to pose downside risks to the global outlook.
Apart from the conflict, policymakers are also watching global trade policy developments, which could disrupt supply chains and fuel imported inflation.
Domestic growth remains resilient, but risks persist
The RBI said the Indian economy has remained resilient despite global headwinds, supported by healthy domestic demand, investment activity and strong services exports.
However, policymakers cautioned that growth could come under pressure from an uncertain global environment, volatile commodity prices and weather-related risks.
The MPC specifically flagged uncertainty surrounding the southwest monsoon and the possibility of El Niño affecting agricultural output and food inflation.
It said the outlook remains “hazy because of the uncertainties regarding south-west monsoon, El Niño, geopolitics and global trade policy.”
Inflation still above target
Retail inflation moved above the RBI’s medium-term target of 4% in June for the first time in 17 months, although it remains within the central bank’s tolerance band of 2-6%.
The RBI now expects headline inflation to rise further over the next few months, primarily because of food and fuel prices, before moderating later in the financial year.
At the same time, it expects core inflation, excluding precious metals, to remain benign in the near term.The central bank projected CPI inflation at 5% and real GDP growth at 6.7% for FY27, with risks to growth seen as evenly balanced.