The Reserve Bank of India kept the repo rate unchanged at 5.25 per cent for the fourth straight meeting, citing inflation uncertainties linked to higher energy prices and geopolitical tensions, while slightly raising its growth forecast and announcing measures for cooperative banks and consumer protection
Published Date – 5 August 2026, 03:45 PM
Mumbai: The Reserve Bank of India kept its benchmark policy rate unchanged for a fourth consecutive meeting on Wednesday, opting to wait for greater clarity on whether higher energy costs triggered by the Iran war feed into broader inflationary pressures.
The six-member Monetary Policy Committee, headed by Governor Sanjay Malhotra, unanimously voted to keep the policy repo rate unchanged at 5.25 per cent and retained its “neutral” policy stance.
The decision leaves India diverging from a growing number of regional central banks, including Indonesia and the Philippines, that have tightened monetary policy in response to higher energy prices and war-driven currency volatility. Instead, the RBI has relied on measures announced at its previous policy meeting to attract capital inflows and support the rupee.
Announcing the decision, Malhotra said headline inflation is expected to rise in the near term and peak in the third quarter of 2026-27, largely due to food and fuel prices, before moderating.
Inflation pressures, he said, have not become broad-based, with core inflation, excluding precious metals, remaining benign.
Signalling that there was no urgency to tighten policy, Malhotra reiterated the RBI’s “resolute” commitment to bringing inflation in line with its target while waiting for greater clarity on the inflation outlook.
The RBI projected consumer price inflation at 5 per cent for the current 2026-27 financial year, compared with the 5.1 per cent forecast in June. It lowered its projection for core inflation, which excludes food and fuel, to 4.3 per cent from 4.7 per cent.
Marginally raising its economic growth forecast for the current financial year to 6.7 per cent from 6.6 per cent projected in June, the central bank said domestic growth remained resilient, supported by robust domestic demand, manufacturing and services activity, and strong exports, despite heightened global uncertainty stemming from the West Asia conflict and trade tensions.
However, it warned that the outlook remains uncertain due to risks from the southwest monsoon, El Nino conditions, geopolitical developments and global trade policy.
While high-frequency indicators present a mixed picture, with manufacturing activity slowing and bank credit growth remaining close to 18 per cent, the RBI said domestic demand continued to remain resilient.
However, Malhotra warned that a weak monsoon, trade uncertainty and geopolitical tensions remained key risks to the growth outlook.
“Global economic conditions and sentiments continue to remain hostage to the rapidly oscillating developments, both in scale and intensity, of the West Asia conflict. While these have impacted the domestic growth-inflation outlook adversely, the stronger macroeconomic fundamentals of the Indian economy are helping navigate this global shock resolutely,” he said.
This, he said, presents an opportunity to accelerate measures to enhance the country’s resilience to withstand such shocks.
“We shall continue to implement policies that further fortify our economy. Whether it is facilitating sustainable growth or promoting consumer protection; whether it is preserving stability of prices, the financial system or the currency, we will do whatever it takes to ensure the same.”
Commenting on the MPC decisions, Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, said, “RBI’s decision to maintain the status quo has been in line with expectations. The tone has been well balanced, highlighting the risks and indicating that future policy decisions will remain data-dependent. We continue to see scope for a 50 bp rate hike in 2HFY27 (second half of the current fiscal), especially as 1QFY28 inflation also continues to remain above 5 per cent.”
The central bank said system liquidity remained in surplus and it would continue to conduct two-way liquidity operations to ensure adequate liquidity in the banking system and align the weighted average call rate with the policy repo rate.
On the external sector, Malhotra said India’s current account remained resilient despite global turbulence, supported by strong services exports and remittance inflows. Foreign direct investment inflows remained robust, while foreign portfolio flows turned positive in June and July following measures to attract capital into Indian debt markets. Foreign exchange reserves stood at USD 692.9 billion as of July 31.
The RBI also announced additional measures for the cooperative banking sector, including draft guidelines to resume licensing of urban cooperative banks and revised draft directions for the Credit Monitoring Arrangement for rural cooperative banks.
To improve transparency and consumer protection, the central bank proposed harmonising and standardising the regulatory framework governing interest rates on advances across all regulated entities.
