0 months ago
RBI signals long pause, keeps repo rate at 5.25%
The Reserve Bank of India is the country's main bank.
It sets the price of borrowing money, called the interest rate.
This week it decided to keep that price the same.
That means the rate stays at 5.25% for now.
The bank wants to help India's economy keep growing.
There is a conflict far away between the US and Iran, which made oil prices go up and then cool down again.
The bank thinks higher prices for food and fuel will not spread everywhere.
The US Federal Reserve also kept its rates the same, so India is not in a hurry.
Bankers disagree on what happens next: some think rates will stay the same all year, while others think they may go up.
The bank will look at new numbers again in October.
The Reserve Bank of India (RBI) kept the policy repo rate unchanged at 5.25% for the fourth consecutive review, with the six-member MPC voting unanimously to retain the 'neutral' stance.
Governor Sanjay Malhotra said the RBI is 'neither dovish nor hawkish,' treating the US-Iran conflict as a temporary supply shock rather than a reason to hike.
The RBI cut its FY27 inflation forecast to 5% from 5.1% and raised its GDP growth forecast to 6.7% from 6.6%; June retail inflation hit 4.38%, above the 4% target for the first time in 17 months.
While regional peers such as Indonesia, the Philippines, Japan and Australia have tightened policy, crude oil cooled from about $100 to around $80 a barrel after a shaky US-Iran ceasefire.
HSBC forecasts 50 basis points of rate hikes this calendar year, while DBS and most bankers, including State Bank of India (SBI), expect rates to remain on hold through FY27.
- Who
- The Reserve Bank of India's six-member Monetary Policy Committee, led by Governor Sanjay Malhotra.
- What
- Left the policy repo rate unchanged at 5.25% for the fourth consecutive review and retained the 'neutral' stance, while cutting its FY27 inflation forecast and raising its GDP growth forecast.
- Where
- India.
- When
- Announced on Wednesday; the next policy review is scheduled for October.
- Why
- To support resilient domestic growth while treating the US-Iran conflict and higher energy costs as a temporary supply shock, pending greater clarity on inflation.
Hawkish camp – rate hikes ahead
Dovish camp – extended pause
Interest rate trajectory
Hawkish camp – rate hikes ahead
HSBC's Pranjul Bhandari forecasts 50 basis points of rate hikes this calendar year, citing negative real domestic interest rates and the US-India yield differential, particularly after the NRI deposit window closes in late September.
Dovish camp – extended pause
DBS's Radhika Rao, SBI and most bankers see limited scope for an October hike and expect the repo rate to stay unchanged through FY27, citing the absence of broad-based inflation and the RBI's dovish guidance.
Inflation risks
Hawkish camp – rate hikes ahead
The finance ministry warned that price pressures are broadening beyond food, and large consumer goods companies are preparing a second consecutive round of price increases, while deficient rainfall and lagging crop sowing threaten food prices.
Dovish camp – extended pause
The RBI maintains that inflation is not broad-based but led by food and fuel, with core inflation moderate, and expects headline inflation to stay within the 2-6% tolerance band even after peaking at 5.9% in the fiscal third quarter.
Key facts
- Policy repo rate
- 5.25%, unchanged for the fourth consecutive review
- MPC stance
- Unanimous hold, 'neutral' stance retained
- FY27 inflation forecast
- Cut to 5% from 5.1% (core inflation 4.3% from 4.7%)
- FY27 GDP growth forecast
- Raised to 6.7% from 6.6%
- June retail inflation
- 4.38%, above the 4% target for the first time in 17 months
- Crude oil price
- Cooled from about $100 to around $80 a barrel
- FCNR(B) inflows
- Over $41 billion since June measures
- Rupee vs US dollar
- Closed at 95.12, its strongest close since July 7
Quotes
RBI Governor Sanjay Malhotra
Governor of the Reserve Bank of India
“"We do not target any specific level for the rupee and will let market forces determine its value, stepping in only to prevent excessive volatility"”
financialexpress.com
“"We are neither dovish nor are we hawkish. We feel that this is the right policy rate for the given growth‑inflation dynamics that we are in today"”
financialexpress.com
Sources
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