The Reserve Bank of India (RBI) has decided to keep the repo rate unchanged at 5.5% during its August 2025 meeting. This decision, made by the Monetary Policy Committee (MPC) under the leadership of Governor Sanjay Malhotra, comes after three consecutive rate cuts since February, totaling 100 basis points. The repo rate is the interest rate at which the RBI lends money to commercial banks.

Reasons for Holding Steady

Several factors contributed to the RBI's decision to maintain the status quo.

• Easing Inflation: CPI headline inflation has declined for eight consecutive months, reaching a 77-month low of 2.1% in June. The RBI has revised its inflation projections for FY26 downwards to 3.1%, compared to the 3.7% projected in June. This figure remains within the RBI's target range of 2-6%.
• Global Uncertainties: The recent announcement by the U.S. to impose a 25% tariff on Indian imports starting August 7th has created uncertainty in the external trade environment. This has led the RBI to adopt a cautious approach, balancing the need to support domestic demand while managing external risks.
• Impact of Previous Rate Cuts: The RBI believes that the full impact of the 100 basis points rate cut since February 2025 is still unfolding. The central bank wants to assess the effects of these cuts before making further adjustments.

Economists' Perspectives

Economists have offered various perspectives on the RBI's decision. Some believe that keeping the repo rate unchanged is a prudent move, given the global uncertainties and the need to monitor the impact of previous rate cuts. Others suggest that a final rate cut could have provided further support to economic growth, especially ahead of the festive season when credit demand typically rises.

• Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank: "The MPC's decision to keep rates unchanged comes in the wake of global uncertainties, even as inflation remains benign and downside risks to growth persists... We can see some room for the last leg of easing only if growth momentum slows significantly".
• Ranen Banerjee, partner and economic advisory leader, PwC India: "The MPC has rightly pushed the pause button on the policy rates, given there is no immediate need to fire another rate cut bullet".

Other Key Decisions and Observations

• GDP Growth Projection: The RBI has retained its GDP growth projection for FY26 at 6.5%.
• Neutral Stance: The MPC has decided to maintain its neutral stance.
• Monetary Policy Transmission: The RBI believes that monetary policy transmission is still ongoing.
• Reverse Repo Rate: The reverse repo rate remains unchanged at 3.35%.
• Bank Rate and MSF Rate: The Bank Rate and the Marginal Standing Facility (MSF) rate stand at 5.75%.
• Standing Deposit Facility Rate: The Standing Deposit Facility Rate is 5.25%.

The RBI's decision to keep the repo rate unchanged reflects a cautious approach aimed at balancing domestic growth with external economic pressures. While some economists believe a final rate cut could have boosted growth, the central bank has prioritized monitoring the impact of previous cuts and navigating global uncertainties. The decision comes ahead of the festive season, a period of increased credit demand, and the RBI will likely continue to assess the economic situation and adjust its policy accordingly.