RBI Holds Repo Rate At 5.25%, Keeps Policy Stance Neutral Amid Global Uncertainty

The Reserve Bank of India (RBI) on Wednesday kept the benchmark repo rate unchanged at 5.25% and retained its neutral policy stance, citing continued uncertainty over inflation and growth amid geopolitical tensions and volatile global markets.

The Standing Deposit Facility (SDF) rate was retained at 5%, while the Marginal Standing Facility (MSF) rate and bank rate remained unchanged at 5.5%.

RBI Governor Sanjay Malhotra said trade uncertainties continued to persist following fresh US tariffs, while crude oil prices and financial markets remained volatile amid the Middle East crisis.

RBI Sees FY27 Inflation At 5%

The RBI projected consumer price inflation at 5% for FY27, with inflation expected to rise in the near term.

Malhotra said headline CPI inflation rose to 4.4% in June after remaining below the RBI's 4% target for 16 consecutive months.

The central bank has projected inflation at 4.7% in the second quarter, 5.9% in the third quarter and 5.5% in the fourth quarter of FY27. Inflation for the first quarter of FY28 is projected at 5.3%.

Malhotra said risks to the inflation outlook included the impact of El Nino on rainfall distribution, volatility in global crude oil prices and geopolitical developments.

Core Inflation Remains Contained

Despite an increase in food and fuel costs, core inflation, excluding food and fuel, remained unchanged at 3.9% in May and June.

Excluding precious metals, core inflation was estimated at 2.3-2.5%, suggesting that broader demand-side inflationary pressures remained subdued.

The Governor said first-quarter inflation was 30 basis points lower than the RBI's earlier projection, reflecting limited pass-through of input cost pressures.

Growth Outlook Remains Resilient

Malhotra said domestic economic activity remained resilient, supported by steady consumption, sustained manufacturing and services activity, healthy investment and robust exports.

High-frequency indicators suggested that private consumption remained strong during the first quarter of FY27, while investment activity was supported by construction, capital goods production and bank credit growth.

"Growth continues to be supported by resilient domestic demand, sustained expansion in manufacturing and services activity, and robust exports," Malhotra said.

The RBI Governor said the MPC had decided to maintain the repo rate and neutral stance as greater clarity was needed on the future trajectory and composition of inflation before any further monetary policy action.

What Does Repo Rate Mean?

The repo rate is the interest rate at which a country's central bank lends money to commercial banks.

When commercial banks run short of funds, they borrow money from the central bank by selling their government securities with an agreement to buy them back later.

How the Repo Rate Affects You

The repo rate acts as the main lever for controlling the country's economy, directly impacting your personal finances: 

• Loan EMIs: A higher repo rate makes retail loans like home, car, and personal loans more expensive.
• Fixed Deposits: When the repo rate rises, banks usually increase interest rates on savings accounts and fixed deposits.
• Inflation Control: Central banks raise the rate to reduce money flow in the market, which helps cool down rising prices.
• Economic Growth: Central banks lower the rate to make borrowing cheaper, which encourages businesses to expand and consumers to spend.