The Reserve Bank of India (RBI) has kept the repo rate unchanged at 5.5%, following the Monetary Policy Committee’s (MPC) meeting held on August 6, 2025. This decision comes as retail inflation in India has fallen to a six-year low, and the overall macroeconomic outlook remains broadly stable.

This move was widely anticipated by analysts and market participants, as the central bank aims to strike a balance between inflation containment and economic growth. The MPC reiterated that this decision is aligned with its mandate of maintaining Consumer Price Index (CPI) inflation at 4%, within a permissible band of ±2%, while supporting the Indian economy’s growth trajectory.

Alongside the unchanged repo rate, other key policy rates have also been maintained:

• Standing Deposit Facility (SDF): 5.25%

• Marginal Standing Facility (MSF): 5.75%

• Bank Rate: 5.75%

These benchmarks determine the short-term interest rates in the economy and directly influence borrowing costs for businesses and individuals.

Steady GDP growth outlook

The MPC retained its projection for real GDP growth for FY2025-26 at 6.5%, highlighting broad-based resilience across sectors. The quarterly breakdown indicates:

• Q1 FY26: 6.5%

• Q2 FY26: 6.7%

• Q3 FY26: 6.6%

• Q4 FY26: 6.3%

Additionally, real GDP growth for Q1 of FY2026-27 is projected at 6.6%, showing continuity in economic expansion. The committee noted that risks to growth are evenly balanced, and the domestic economy is supported by healthy investment activity, strong services sector momentum, and rural revival aided by monsoons.

Inflation at record low, but caution persists

The standout feature of the current policy review is the sharp decline in retail inflation, which is now at its lowest level in more than six years. The MPC cited several factors behind this disinflationary trend:

• Favourable base effects from the previous year

• Steady progress of the southwest monsoon, improving rural prospects

• Healthy kharif crop sowing

• Adequate water reservoir levels and buffer stocks of essential foodgrains

These dynamics have significantly improved the near-term inflation outlook. Consequently, the average CPI inflation for FY2025-26 is expected to remain well within the RBI's comfort zone.

However, the MPC cautioned that CPI inflation could rise above 4% by Q4 of FY2025-26, driven by:

• Unfavourable base effects

• Demand-side factors, especially as the impact of recent fiscal and policy interventions begins to materialize

• Mild pressures from global commodity prices

That said, core inflation, which excludes volatile items like food and fuel, is expected to remain moderately above 4% throughout the year, barring any unexpected supply shocks.

Monetary policy stance: Calibrated for stability

Despite the strong disinflationary trend, the MPC chose not to cut rates, signaling that its stance remains cautious and data-driven. The central bank wants to ensure that inflation does not rebound sharply due to external or structural triggers. The message is clear: India’s monetary policy remains calibrated, conservative, and focused on medium-term stability.

By maintaining the current rate levels, the RBI is also ensuring that:

• Financial conditions remain neutral to slightly accommodative

• Exchange rate volatility is contained, especially in light of global uncertainty

• Long-term inflation expectations remain anchored

What this means for consumers and businesses

The decision to keep the repo rate steady means that loan EMIs for home, auto, and personal loans are unlikely to come down in the immediate term. However, given the moderating inflation, real purchasing power could improve, and consumer confidence may rise.

For businesses, especially in sectors like manufacturing, infrastructure, and MSMEs, credit costs remain stable, helping them plan capital expenditure without fear of rising interest rates.

The stability in GDP outlook also means better demand conditions, particularly in sectors linked to consumption, real estate, and financial services.

Conclusion: Stability, caution, and controlled optimism

The August 2025 MPC decision reflects the RBI’s balanced approach towards growth and inflation. With inflation easing and GDP growth on track, the central bank appears in no rush to change its policy stance. Its decisions are informed by data, driven by structural realities, and aimed at long-term economic stability.

Going forward, the markets will watch for:

• Monsoon outcomes and rural demand trends

• Global commodity prices and geopolitical developments

• Domestic fiscal and industrial policies

Overall, India stands in a sweet spot of low inflation and solid growth, allowing the RBI to maintain its current trajectory. For the time being, borrowers, investors, and policymakers can operate in a stable interest rate environment, with no sudden surprises on the horizon.

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