Mumbai: The Reserve Bank of India's (RBI) rate-setting panel on Wednesday decided to keep the key policy rate unchanged at 5.25% for the fourth straight meeting amid geopolitical uncertainties.
The six-member monetary policy committee (MPC) also decided to retain the neutral stance, allowing flexibility in the coming policies based on incoming data. Governor Sanjay Malhotra said that a change in stance would depend on the growth-inflation dynamics. This would mean instances where inflation is very high or growth is slacking.
“There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action,” Malhotra said at a press conference after announcing the policy.
A Mint poll of 10 economists had predicted the extended pause as the central bank navigates geopolitical risks, volatile crude oil prices, an uneven monsoon, a weakening rupee and imported inflation.
In 2025, the central bank had cut the repo rate by a total 125 basis points (bps), with the last reduction of 25 bps in December to 5.25%. It has been on pause so far in 2026. The repo, or repurchase, rate is the rate at which the RBI lends short-term funds to commercial banks, typically against government securities as collateral.
Economists called the policy dovish. HSBC economists said in a note on Wednesday that the policy tone was dovish overall, in fact more than in the June meeting. However, HSBC expects rate hikes in this calendar year, of 50 basis points (bps) overall across the October and December policy meeting.
“We are neither, you know, dovish nor are we hawkish,” said Malhotra. “We feel that this is the right policy rate for the given growth, inflation, and climate that we are in today. There is a lot of uncertainty which will, of course, play out.”
On Wednesday, the monetary policy committee tweaked its estimates of growth and inflation for the current financial year. It pegged growth at 6.7% for fiscal year 2027 (FY27), compared with 6.6% estimated in the June policy. It expects retail inflation, as measured by the consumer price index, to average 5% in FY27, compared to 5.1% estimated in the previous policy review.
Indranil Pan, chief economist, Yes Bank, said that there is no clear forward guidance and rightly so, as there appear to be many moving parts critically related to the geopolitics of West Asia.
The central bank’s growth optimism comes on the back of a clutch of reasons, even as it believes that the turbulent global economic environment is likely to have some bearing on domestic economic activity. Among these are a sustained momentum in services, continuing impact of GST cuts, and broadly stable employment conditions, which are expected to support urban demand.
The MPC said that headline CPI inflation edged above the target, as expected, but was mostly on account of fuel and food. India’s retail inflation rose from 3.93% in May to 4.38% in June.
“Our target is headline inflation. It is our endeavor to bring the headline inflation in line with the target over the medium term,” said Malhotra.
Economists at Barclays said that they take comfort from Malhotra’s continued emphasis on the current and imminent increase in inflation still not being entrenched, offering room to the MPC to persist with a pause.
Interestingly, Malhotra declined to share the level of crude prices used by the MPC for its growth-inflation forecast, saying that it is “internal” and is “market-sensitive information”. So far, the central bank has been sharing this data and was $95 per barrel in the June policy.
Bankers said RBI’s decision was a balanced one.
“The RBI’s decision to keep the policy rate unchanged while revising the growth outlook upward and the inflation forecast downward reflects a balanced and pragmatic approach,” said CS Setty, chairman, State Bank of India.
The neutral policy stance leaves room for a move in either direction in the ensuing policies, depending on incoming data, said Brajesh Kumar, chief executive, Canara Bank. “Since economic growth is an important consideration at this juncture, a pause makes sense as rate hikes could strain consumption and growth.”
