RBI Maintains 5.5% Repo Rate Amid Economic Growth and Inflation Assessment: Growth Forecast Raised to 6.8%

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The Reserve Bank of India (RBI) maintained its key repo rate at 5.50% on Wednesday, aligning with market forecasts as it assesses the effects of previous rate reductions and recent tax cuts amid global trade uncertainties.

Having implemented a total reduction of 100 basis points in the first half of 2025, the central bank opted to hold rates steady for the second consecutive meeting after pausing in August.

The six-member Monetary Policy Committee voted unanimously to maintain the repo rate at 5.50%, while continuing with a "neutral" policy stance.

A Reuters survey had anticipated this decision, though some economists had noted that subdued inflation levels and growth concerns could have justified a rate cut.

Following the announcement, India's benchmark 10-year bond yield increased by 2 basis points to 6.6038%, while the rupee strengthened marginally to 88.75 against the dollar, with equity markets showing slight gains.

RBI Governor Sanjay Malhotra, in his video address, explained that the committee deemed it prudent to wait and observe the impact of recent policy adjustments before determining future monetary actions.

The central bank anticipates that previous rate cuts combined with newly announced tax reductions on consumer products will positively stimulate demand, though it acknowledged that punitive tariffs imposed by the United States on Indian exports present a significant headwind.

In a positive development, the RBI revised its GDP growth forecast upward to 6.8% for the current fiscal year, compared to its earlier projection of 6.5%. This adjustment follows stronger-than-anticipated economic growth of 7.8% during the April-June quarter year-on-year.

The inflation outlook has also improved, with the RBI lowering its forecast for the current financial year to 2.6%, down from the previous estimate of 3.1%. Governor Malhotra noted that declining food prices and tax rate reductions have contributed to a more favorable inflation environment, while growth prospects remain resilient.

India's annual inflation increased slightly to 2.07% in August due to modest rises in food prices, but remained near the lower boundary of the central bank's 2%-6% target range, preserving space for potential future rate cuts.