RBI Keeps Repo Rate at 5.25% Amid Geopolitical Uncertainty and Inflation Risks

Monetary Policy Committee Opts for Pause

In its 61st meeting, the MPC maintained the repo rate at 5.25% and held the standing deposit facility and marginal standing facility rates steady at 5.00% and 5.50% respectively. Governor Sanjay Malhotra and fellow members agreed that while India remains a fast-growing economy, significant upside risks to inflation have emerged due to rising energy costs and global shipping disruptions. The committee expects real GDP growth to reach 6.6% in 2026-27, with headline CPI inflation projected at 5.1%. Members emphasized that the transmission of input cost pressures remains a concern, but current data warrants a cautious, data-dependent pause rather than an immediate policy shift.

Growth Projections and Inflationary Pressures

The MPC has projected India’s real GDP growth for the fiscal year 2026-27 at 6.6%, supported by strong agricultural performance, robust public capital expenditure, and a recovery in private consumption. However, the committee noted that inflation management remains the primary challenge. Headline CPI inflation is projected at 5.1% for the year, slightly above the RBI's target of 4.0%. The committee highlighted that while core inflation (excluding food and fuel) has moderated, volatile vegetable prices, potential monsoon deficiencies, and shipping delays in the Red Sea could trigger fresh inflationary shocks if not managed through careful domestic supply policies.

The Stance of Withdrawal of Accommodation

The RBI has maintained its policy focus on the gradual withdrawal of accommodation to ensure that inflation aligns with the target while supporting growth. Governor Malhotra emphasized that the transmission of past rate hikes through the banking system is still incomplete, and commercial banks must continue to adjust their lending and deposit rates to reflect the policy stance. The decision to hold rates steady provides a stable interest rate environment for corporate borrowers and home buyers, though the central bank remains prepared to act if domestic or global economic indicators deviate from the projected path.