RBI Holds Repo Rate at 5.5% and Maintains Neutral Policy Stance

The Reserve Bank of India (RBI) has decided to keep the key repo rate unchanged at 5.5% after concluding the three-day Monetary Policy Committee (MPC) meeting chaired by Governor Sanjay Malhotra. The central bank also confirmed that it will maintain a neutral policy stance to balance growth and inflation.

Repo Rate and Key Rates

• Repo Rate: 5.5% (unchanged)

• SDF Rate: 5.25%

• MSF Rate and Bank Rate: 5.75%

The MPC voted unanimously to hold the rate steady, citing the need to assess the full impact of policy actions before making further changes.

Inflation Trends

RBI Governor Sanjay Malhotra noted that inflation has moderated faster than expected, prompting the MPC to maintain a neutral stance. Key points include:

• Average headline inflation forecast for FY26 revised down to 2.6%, compared to 3.7% in June and 3.1% in August.

• Food inflation has fallen sharply due to improved supply, GST rate cuts, healthy monsoons, good reservoir levels, and sufficient food grain stocks.

• RBI projects CPI inflation at 1.8% in Q2 and Q3, 4% in Q4, and 4.5% in Q1 FY27.

Growth Outlook

• Real GDP growth for FY26 projected at 6.8%, supported by strong domestic demand, favourable monsoons, lower inflation, monetary easing, and GST reforms.

• Quarterly estimates: Q2 – 7%, Q3 – 6.4%, Q4 – 6.2%, Q1 FY27 – 6.4%.

• Global uncertainties, trade tariffs, and export risks may moderate growth in H2 FY26.

Reasons for Holding Rates

The MPC cited several reasons for maintaining the repo rate:

1. Front-loaded policy rate cuts of 100 basis points earlier this year.

2. Ongoing impact of government reforms including income tax slab changes and GST rationalisation.

3. Need for policy clarity before initiating further action.

External Risks and RBI Approach

• Risks include global trade uncertainties, US tariffs, and rupee volatility.

• Despite external risks, India’s economy is resilient due to strong domestic demand, good harvests, and government spending.

• Experts note that maintaining a neutral stance allows the RBI flexibility to respond to economic changes without prematurely loosening policy.

“By not rushing into rate cuts, the RBI has demonstrated a prudent and forward-looking approach, balancing inflationary pressures with sustainable growth,” said Dr. Manoranjan Sharma, Chief Economist, Infomerics Ratings.