RBI Keeps Repo Rate Steady at 5.5% in August, Retains Neutral Stance

On Wednesday, the Reserve Bank of India (RBI) decided to keep the repo rate unchanged at 5.5 percent following its Monetary Policy Committee (MPC) meeting in August 2025. This move reflects a unanimous decision by the six-member committee, led by RBI Governor Sanjay Malhotra, to adopt a "wait and watch" approach amid a complex global and domestic economic landscape.

Having delivered a cumulative 100-basis-point reduction in policy rates from February to June in 2025, including a significant 50-basis-point cut in the last meeting, the central bank has now chosen to pause further monetary easing. This pause is informed by multiple factors. Firstly, inflation has eased considerably, with Consumer Price Index (CPI) inflation dipping to only 2.1 percent in June, well below the RBI’s medium-term target of 4 percent. Such a favourable inflationary environment gives the bank some breathing space. However, the RBI remains alert, highlighting that upside risks persist due to weather-related shocks and a recent turn in global events.

A major external concern is the recent announcement by the United States to impose a 25 percent tariff plus penalties on Indian exports. The RBI recognises that these tariffs create significant uncertainty for India’s trade outlook, putting potential pressure on GDP growth. The risks include volatility in currency and capital flows as well. 

Despite the pause, the MPC has reiterated its neutral stance, signalling that future rate actions, whether increases or cuts, will be data-dependent. If growth weakens further, there is room for accommodation, or if inflation surges, tightening remains a possibility. The central bank’s policy guidance stresses that the transmission of previous rate cuts needs time to filter through the credit markets and the broader economy.

Governor Sanjay Malhotra, in his post-meeting comments, highlighted the importance of providing stability during the ongoing festive season, a period typically associated with increased consumption and credit demand. He stated that the effects of the front-loaded rate cuts should be allowed to play out before considering further policy moves. This, he suggested, will help support credit growth in key sectors such as MSMEs, housing, and retail, which are critical drivers of India’s domestic demand.

In addition, the RBI has retained India’s GDP growth forecast for FY26 at 6.5 percent, signalling measured confidence in the country’s economic resilience despite pronounced external headwinds. The inflation projection for FY26 Q2 is expected to be at 2.1 percent, Q3 at 3.1 percent and Q4 at 4.4 percent.

In conclusion, the RBI’s decision to hold the repo rate at 5.5 percent showcases a balance between maintaining support for domestic economic growth and remaining vigilant against evolving global risks. By pausing after a round of quantitative easing, the central bank highlights its intent to ensure policy continuity while closely monitoring economic data and external developments. The RBI has indicated it will revisit its stance based on upcoming trends in festive demand, agricultural output, and global trade conditions, showing a prudent and flexible approach in steering India’s monetary policy forward. The next meeting of the MPC is scheduled from September 29 to October 1, 2025.