RBI's Monetary Policy Committee keeps repo rate unchanged at 5.25%, maintains neutral stance

The Reserve Bank of India's (RBI) six-member Monetary Policy Committee (MPC), chaired by Governor Sanjay Malhotra, unanimously decided to keep the repo rate unchanged at 5.25% at its latest policy meeting.

The MPC, which met from August 3 to August 5, also retained its neutral policy stance, citing expectations that inflation is likely to be higher in 2026 than in 2025.

“The West Asia conflict continues to challenge the global economy by disrupting key trade routes and supply chains, amplifying market volatility and depressing business sentiment. Trade uncertainty lingered as the US imposed fresh tariffs. The global economic environment has become increasingly unstable; global growth is projected to soften while inflation forecast is higher for 2026 compared to 2025,” Governor Malhotra said while announcing the MPC’s decision.

Governor Malhotra noted that headline inflation is set to rise in the near term, fuelled by higher oil and food prices, and will peak in the third quarter before starting to decline.

Governor Malhotra said that the rise in inflation is exacerbated by food and fuel prices, but it is not broad-based.

Amid persistent global uncertainty, the domestic economy has exhibited resilience, and the Indian economy has performed better than expected in the April-June quarter of this financial year, the Governor highlighted.

But he noted that renewed tensions in West Asia, volatility in global markets and El-Nino are downside risks to growth.

"Real GDP growth for 2026-27 is projected at 6.7%, with Q1 at 7.0%; Q2 at 6.4%; Q3 at 6.5%; and Q4 at 6.8%. Real GDP growth for Q1:2027-28 is projected at 7.3%. The risks are evenly balanced," MPC said.

On the inflation front, the RBI has projected that inflation is set to rise beyond its tolerance zone in 2026-27.

"Looking ahead, the prospects for agriculture are clouded by deficient and uneven southwest monsoon amidst El Niño conditions. The reservoir levels, which remain close to normal, bode well. The government’s initiatives for crop diversification, including short duration as well as climate-resilient crops, and water harvesting and conservation, inter alia, are expected to mitigate the impact of deficient rainfall," the RBI governor said.

"CPI inflation for 2026-27 is projected to be 5.0% with Q2 at 4.7%; Q3 at 5.9%; and Q4 at 5.5%. Inflation for Q1:2027-28 is projected at 5.3% with risks being evenly balanced," MPC said.

On the liquidity front, the governor noted that it stood at an average daily surplus of ₹1.0 lakh crore since the last MPC meeting in June 2026.

"System liquidity, as measured by the net position under the LAF, stood at an average daily surplus of ₹1.0 lakh crore since the last MPC meeting in June 2026. Going ahead, the usual return of currency during the monsoon season, drawdown of government cash balances and our special measures to attract capital inflows are expected to aid banking system liquidity in the near-term," Malhotra added.