The Reserve Bank of India has kept the policy repo rate unchanged at 5.50 percent in its latest bi-monthly monetary policy review, while retaining its real GDP growth projection for the 2025-26 financial year (FY26) at 6.5 percent. The decision came at the conclusion of the Monetary Policy Committee’s (MPC) three-day meeting, as the central bank adopted a cautious, data-driven stance amid soft domestic inflation and rising global uncertainties.
Policy rate: Repo rate unchanged at 5.50 percent
FY26 GDP growth forecast: Retained at 6.5 percent
FY26 CPI inflation forecast: 3.1 percent; lowest at 2.1 percent in Q2
Forex reserves: $688.9 billion as of August 1
CAD: Narrowed to 0.6 percent of GDP in FY25
Net FPI flows: Outflows of $0.8 billion in FY26 so far
System liquidity: Surplus of ₹3.0 lakh crore per day on average
Announcing the policy, RBI Governor Sanjay Malhotra said the central bank remains committed to supporting growth while ensuring inflation remains within the target band. “We are navigating a challenging global landscape marked by geopolitical tensions, volatile financial markets, and trade policy uncertainties. Our approach remains balanced and responsive,” he stated.
The RBI projected headline consumer price index (CPI) inflation at 3.1 percent for FY26, significantly lower than the upper tolerance band of 6 percent. Quarterly projections suggest inflation could bottom out at 2.1 percent in Q2 before edging up to 4.4 percent in Q4 due to base effects and global factors. For Q1 of FY27, CPI inflation is forecast at 4.9 percent.
While the inflation trajectory appears softer—helped by a strong monsoon and stable food prices—Malhotra flagged potential risks. “There may be some near-term uptick in headline inflation due to an unfavourable base and imported pressures, but overall price stability remains achievable,” he said. Core inflation, he added, is likely to remain slightly above 4 percent.
The RBI has retained its real GDP growth projection for FY26 at 6.5 percent, with quarterly estimates ranging from 6.3 percent in Q4 to 6.7 percent in Q2. Growth for Q1 of FY27 is projected at 6.6 percent.
Malhotra expressed optimism about domestic growth drivers, citing progress in the monsoon, rising festival demand, and continued policy support. “The macroeconomic setting remains favourable for growth in the near term. India’s fundamentals and buffers provide a strong foundation to withstand external shocks,” he said.
However, he cautioned against global headwinds. “External demand prospects remain uncertain amidst tariff announcements and trade disputes. The US has imposed a 25 percent tariff on Indian imports and has levied an additional, undisclosed penalty related to defence and energy ties with Russia,” he noted.
System liquidity has improved, with the net Liquidity Adjustment Facility (LAF) balance averaging ₹3.0 lakh crore per day since the last policy, compared to ₹1.6 lakh crore earlier. The phased implementation of the CRR cut announced previously is expected to further bolster liquidity in the coming months.
India’s external sector continues to show resilience, backed by strong services exports and remittance inflows. While net FDI moderated due to higher outward investments, gross FDI flows remained robust during April-May FY26.
