RBI Holds Repo Rate at 5.5% as Global Trade Tensions Weigh on Outlook

RBI Holds Repo Rate at 5.5%, Flags Inflation Risks and Global Uncertainty.

The Reserve Bank of India (RBI) on Wednesday opted to keep the key repo rate steady at 5.5%, as Governor Sanjay Malhotra-led Monetary Policy Committee (MPC) concluded its three-day meeting. This marks the second consecutive policy where the central bank has chosen to pause after cutting rates by a cumulative 100 basis points earlier in the year.

“All six members of the MPC voted unanimously to maintain the repo rate at 5.5% under the Liquidity Adjustment Facility,” said Malhotra. The Standing Deposit Facility (SDF) rate was retained at 5.25%, and the Marginal Standing Facility (MSF) rate and Bank Rate at 5.75%. The committee also decided to maintain a neutral policy stance.

Inflation Cools, But Caution Persists
Governor Malhotra said the decision to hold rates stemmed from persistent uncertainty around inflation, especially food prices.

“Headline inflation has eased, largely due to sharp corrections in vegetable prices. However, this moderation is uneven, and core inflation remains near 4%,” he noted. “The MPC expects headline inflation to rise again toward the end of the year.”

The RBI has been closely watching volatile food prices, which continue to cloud the inflation outlook, even as recent readings showed relief.

Growth Holding Up, But Below Expectations
On growth, Malhotra said the Indian economy remains resilient but not quite at the pace initially projected.

“While GDP growth is robust, it remains slightly below our earlier expectations. Uncertainties around global trade, especially tariff threats, also pose risks to the outlook,” he said.

He added that the full effect of the 100-bps rate cuts since February is still playing out. “Policy transmission is ongoing, and we are yet to see the complete impact of the earlier easing,” Malhotra explained.

Waiting Game for Further Transmission
The central bank signalled it would wait for previous rate reductions to fully filter through the economy before considering further moves. “Given the evolving macroeconomic landscape, the MPC believes it is prudent to pause and assess the effects of earlier front-loaded cuts. Accordingly, we maintain the repo rate at 5.5%,” said the Governor.

Outlook: Data-Driven, With High Bar for More Cuts
Reiterating a neutral stance, the RBI said it would continue to monitor incoming data closely before making any changes to the policy direction.

“The MPC will remain alert to domestic inflation and growth dynamics before deciding on the next course of action,” Malhotra stated. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said the RBI’s pause reflects caution amid external headwinds.

“With inflation expected to inch higher in the coming months, the hurdle for additional rate cuts is quite steep. Only a marked slowdown in growth momentum could revive easing prospects,” she noted.