0 months ago
RBI Keeps Repo Rate at 5.25% Amid Iran War Risks
The Reserve Bank of India is the country's central bank, and it helps decide how much it costs to borrow money.
On Wednesday, it decided to keep its main interest rate the same at 5.25 percent.
That means borrowing money will not get more expensive for now.
The bank's leader, Sanjay Malhotra, said the prices of food and fuel are going up because of a war involving Iran, which has made energy more expensive.
Because of this, the bank thinks prices in India will keep rising and reach their highest point later this year.
But it also said these price increases have not spread to everything yet.
The RBI expects India's economy to keep growing, and it raised its growth prediction a little.
It also lowered its prediction for how fast prices will rise this year.
The bank will keep watching things like the monsoon rains, world events, and food and fuel prices before making any changes again.
The RBI kept the repo rate unchanged at 5.25 per cent for a fourth consecutive meeting, with the MPC unanimously retaining a neutral stance.
Headline inflation is expected to peak in the third quarter of 2026-27, driven largely by food and fuel prices amid higher energy costs linked to the Iran war.
The RBI cut its FY27 inflation forecast to 5 per cent from 5.1 per cent and raised its GDP growth forecast to 6.7 per cent from 6.6 per cent.
The SDF rate was retained at 5 per cent and the MSF and bank rates at 5.5 per cent; forex reserves stood at $692.9 billion as of July 31.
Risks flagged include a weak southwest monsoon, El Nino conditions, geopolitical tensions and global trade policy, while Kotak Mahindra Bank economist Upasna Bhardwaj sees scope for 50 basis points of rate hikes in the second half of FY27.
- Who
- The Reserve Bank of India's Monetary Policy Committee, led by Governor Sanjay Malhotra
- What
- Kept the repo rate unchanged at 5.25 per cent with a neutral stance while revising inflation and growth forecasts
- Where
- Mumbai, India
- When
- Wednesday, following a three-day monetary policy committee meeting
- Why
- To await greater clarity on inflation risks from higher energy costs linked to the Iran war and other uncertainties
Analysts See Scope for Rate Hikes
RBI Signals Patience
Future Interest Rate Trajectory
Analysts See Scope for Rate Hikes
Upasna Bhardwaj of Kotak Mahindra Bank sees scope for 50 basis points of rate hikes in the second half of FY27, as inflation could remain above 5 per cent in the first quarter of FY28.
RBI Signals Patience
RBI Governor Sanjay Malhotra signalled there was no urgency to tighten monetary policy, reiterating the RBI's 'resolute' commitment to bringing inflation in line with its target and awaiting greater clarity on the inflation path.
Key facts
- Repo Rate
- 5.25% (unchanged)
- Policy Stance
- Neutral
- Standing Deposit Facility (SDF) Rate
- 5%
- MSF / Bank Rate
- 5.5%
- FY27 Inflation Forecast
- 5% (down from 5.1%)
- FY27 GDP Growth Forecast
- 6.7% (up from 6.6%)
- Inflation Peak Expected
- Q3 of 2026-27
- Forex Reserves
- $692.9 billion (as of July 31)
Quotes
Governor Sanjay Malhotra
RBI Governor
“"Growth, although resilient, is expected to be lower in this financial year. The outlook, however, is hazy because of the uncertainties regarding South's global trade policy. There is a need for greater clarity to emerge, especially regarding inflation, its path and composition before taking any policy action."”
NDTV
“"The RBI interest rate as widely expected stays unchanged. Benign core inflation combined with marginally higher headline inflation and anchored inflation expectations, resulted in the decision. It's a tight rope walk between growth and stability that the RBI has done again with dexterity."”
NDTV
Sources
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