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Key Monetary Policy Decisions
At its 56th bi-monthly Monetary Policy Committee (MPC) meeting held from August 4–6, 2025, the Reserve Bank of India (RBI) kept the repo rate unchanged at 5.5% for the second consecutive time. All six committee members voted unanimously to retain the neutral stance.
Other key rate decisions:
- Standing Deposit Facility (SDF): 5.25%
- Marginal Standing Facility (MSF) and Bank Rate: 5.75%
RBI Governor Sanjay Malhotra emphasized the need to observe the full impact of prior rate reductions before any further policy action.
RBI Governor Sanjay Malhotra on US Tariff Impact
During the post-policy press conference, Malhotra addressed the growing concerns over the recent 25% tariffs imposed by the US on Indian exports:
“It is really very difficult to predict the precise impact of these tariffs at this point,” he stated, citing ongoing global volatility and political uncertainty.
Despite the cloud of trade tension, Malhotra reassured that the MPC had factored these developments into its overall growth outlook.
Growth and Inflation Outlook for FY26
Despite global uncertainties, the RBI retained its real GDP growth forecast at 6.5% for FY26, citing:
- Improved rural demand
- Investment uptick in infrastructure
- Resilient manufacturing and services
More notably, inflation projections were revised downward from 3.7% to 3.1%, thanks to:
- A sharp decline in food inflation
- Stable fuel prices
- Reduced global commodity pressure
The CPI in June 2025 dropped to a 77-month low of 2.1%, well within the RBI’s comfort zone.
Liquidity and Transmission Measures
While holding the key rates steady, the RBI announced plans to enhance liquidity support in the banking system. This includes:
- A proposed reduction in the Cash Reserve Ratio (CRR) in September 2025, aimed at easing liquidity constraints ahead of the festive season.
- Continued reliance on Variable Rate Reverse Repo (VRRR) and long-term repo operations (LTRO) to manage short-term liquidity.
Governor Malhotra emphasized that the RBI wants to “ensure earlier 100 bps rate cuts are fully transmitted” to borrowers and consumers before considering further easing.
Market Response and Analyst Reactions
The markets reacted with cautious optimism:
- Nifty 50 dipped 0.25%
- Sensex fell around 0.16%
- Broader indices (Midcaps and Smallcaps) slid 1%
Analyst Highlights:
- Kotak Mahindra Bank’s Upasna Bhardwaj said,
“While inflation is well under control, RBI’s focus on uncertainty—especially tariffs—prevents any immediate rate cut.” - Sakshi Gupta (HDFC Bank) warned that US tariffs could impact Indian exports and shave 20–25 bps off FY26 growth, unless trade tensions de-escalate soon.
Monetary Policy in Global Context
RBI’s stance comes at a time when:
- US Fed is cautiously holding rates amid a cooling labor market
- ECB remains neutral but inflation in Eurozone is edging higher
- Emerging markets like Brazil and Indonesia have begun selective easing
India’s balanced policy aims to anchor inflation without derailing growth, especially in a globally uncertain environment.
Looking Ahead: What to Expect in the Next MPC Meet
The next MPC is scheduled for October–November 2025. Key factors to watch:
- Full impact of US tariffs
- Kharif crop output and rural inflation trends
- Global commodity and crude oil price movements
- Transmission of earlier monetary actions
Analysts believe RBI may continue its pause-or-cut bias, depending on global macro shifts and India’s export data.
FAQs
1. Why did RBI keep the repo rate unchanged in August 2025?
To allow earlier rate cuts to fully transmit and due to global uncertainty, especially from new US tariffs.
2. What is the current repo rate?
It remains at 5.50%, with no change since the last revision in April 2025.
3. Has the inflation forecast changed?
Yes. RBI revised CPI inflation forecast to 3.1%, down from 3.7%, citing easing food prices.
4. What did RBI say about US tariffs?
Governor Malhotra said it’s “difficult to predict” the full impact, but risks are acknowledged in growth forecasts.
5. Will RBI cut rates soon?
Not immediately. Future actions depend on growth resilience and tariff effects.
6. What’s RBI’s growth forecast for FY26?
It’s held steady at 6.5%, supported by investment and domestic demand.
Conclusion: Steady Hand Amid Global Uncertainty
RBI’s August 2025 policy demonstrates a measured approach—one that balances domestic stability with global caution. While inflation is firmly under control and growth steady, the central bank remains watchful of external shocks, particularly trade-related ones.
With monetary policy holding steady and liquidity measures in place, the RBI has kept the door open for flexibility, should the economy require support in future quarters.