Citing inflation volatility, trade tensions, and ongoing rate transmission, Reserve Bank of India opts for a wait-and-watch approach with neutral stance intact.
Reserve Bank of India Governor Sanjay Malhotra
The Reserve Bank of India (RBI) on August 6 chose caution over action, keeping the benchmark repo rate unchanged at 5.5%, as concerns over volatile food prices, global trade tensions, and uncertain monetary policy transmission took center stage at the conclusion of its three-day Monetary Policy Committee (MPC) meeting.
In a unanimous vote, the six-member committee, headed by Governor Sanjay Malhotra, decided to hold the repo rate steady and maintain a "neutral" policy stance, signaling a pause in its rate-cutting cycle after 100 basis points of reductions earlier this year.
“After a detailed assessment of evolving macroeconomic and financial developments, the MPC voted unanimously to keep the policy repo rate unchanged at 5.5%,” Malhotra said during his post-policy briefing.
The Standing Deposit Facility (SDF) remains at 5.25%, while the Marginal Standing Facility (MSF) rate and the Bank Rate continue at 5.75%.
Inflation down, but not out
While headline inflation has cooled — thanks largely to a dip in vegetable prices — the central bank is not declaring victory just yet. Governor Malhotra warned that the relief may be temporary, with inflation projected to pick up again by the end of the financial year.
“Core inflation remains steady near 4%, but food price volatility remains a risk,” Malhotra said. “We are seeing a transient easing, not a structural one.”
With inflationary risks still lurking, especially from global supply chain disruptions and commodity price shocks, the RBI’s strategy remains focused on striking a delicate balance between price stability and growth.
Growth steady, but slower than expected
India’s economic growth, though resilient, is falling short of RBI’s earlier projections. External uncertainties — particularly tariff threats and soft global demand—have added layers of complexity to the economic outlook.
“Growth is robust but slightly below our expectations. The impact of the 100 basis points cut since February is still unfolding,” Malhotra noted.
The RBI believes that the full transmission of past rate cuts is still working its way through the system, affecting both credit markets and consumer borrowing costs.
'High bar' for future cuts
The central bank’s tone indicated that future rate cuts will not come easily. With inflation likely to tick higher and global headwinds intensifying, the RBI is in no rush to resume monetary easing.
“The current macroeconomic conditions and uncertainties call for a pause. We must allow past easing to percolate fully through the system,” Malhotra emphasized.
Economists echoed the cautious sentiment. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said the RBI’s hands are tied unless growth momentum slows significantly.
“The bar for further rate cuts is now very high. Unless growth sharply weakens, we’re unlikely to see more easing in the near term,” she said.
What's next: data, patience, and vigilance
Going forward, the RBI is expected to remain in data-dependent mode, watching inflation trends, domestic demand, and global financial conditions with a hawk’s eye.
“The MPC resolved to maintain a close vigil on incoming data and evolving growth-inflation dynamics to determine the appropriate policy path,” Malhotra concluded.
In essence, the RBI has signaled a strategic pause — not a pivot. With the road ahead marked by uncertainty, India’s central bank is opting to stay the course rather than risk veering off into stormy economic waters.
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