Mumbai: In a widely anticipated move, the Reserve Bank of India (RBI) decided on Wednesday to maintain its key repo rate at 5.50%, signaling a cautious stance while assessing the effects of earlier monetary easing and recent tax reductions. The six-member Monetary Policy Committee (MPC) voted unanimously to keep the rate unchanged and opted to continue with a "neutral" policy approach. Analysts had expected the hold, citing both subdued inflation and persistent global trade uncertainties.
RBI Governor Sanjay Malhotra emphasized the importance of a "wait and watch" strategy, noting that prior rate cuts and tax reductions are expected to bolster domestic demand. However, he warned that punitive tariffs imposed by the United States on Indian exports could weigh on trade performance. The central bank upgraded its GDP growth forecast for the current fiscal year to 6.8%, up from the previous estimate of 6.5%, reflecting the stronger-than-expected 7.8% expansion recorded in the April-June quarter.
Inflation remains comfortably within the RBI’s 2%-6% tolerance band, rising to 2.07% in August, largely due to a modest uptick in food prices. The MPC projects inflation for the year at 2.6%, a downward revision from 3.1%, attributing the moderation to lower food costs and the impact of recent tax cuts. The central bank underscored that while the growth outlook remains resilient, policy decisions must consider both domestic and international headwinds.
Financial markets reacted mildly to the announcement. India’s benchmark 10-year bond yield edged 2 basis points higher to 6.6038%, while the rupee strengthened slightly to 88.75 against the U.S. dollar. Equity indices showed marginal gains, reflecting investor confidence in the RBI's measured approach.
By maintaining the repo rate, the RBI signals a deliberate approach to monetary policy, balancing the need to support domestic growth with vigilance against global economic pressures. Observers note that this pause allows policymakers to gauge the cumulative impact of earlier easing measures before considering any further adjustments.