The Reserve Bank of India (RBI) on Wednesday kept the benchmark repo rate unchanged at 5.25%, saying the Indian economy remains resilient despite an uncertain global backdrop. RBI Governor Sanjay Malhotra said India continues to be the world's fastest-growing large economy although inflation is expected to edge higher in the coming months because of rising food and fuel prices.
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The decision was taken unanimously by the six-member Monetary Policy Committee (MPC) after its three-day policy meeting. The RBI chose to maintain the status quo, citing the need for more clarity on inflation before considering any change in interest rates.
The RBI had last time slashed the repo rate was on December 5, 2025 when it reduced the benchmark lending rate by 25 basis points to 5.25% as inflation eased to multi-year lows and the rupee remained under pressure.
While inflation has eased in recent months, the central bank warned that price pressures are likely to intensify in the near term.
"Headline inflation is expected to rise further in the near term. It is expected to peak in Q3 of this year, primarily due to food and fuel, and thereafter moderate," Malhotra said while announcing the policy decision.
Core inflation, which excludes volatile components such as precious metals, has remained largely stable and is expected to gradually move closer to headline inflation by the end of the financial year.
The RBI has projected Consumer Price Index (CPI) inflation at 5% for the current financial year. Its quarterly estimates stand at 5.3% in Q1, 4.7% in Q2, 5.9% in Q3 and 5.5% in Q4.
Even as inflation remains a concern, the central bank sounded more optimistic about economic growth. It raised its FY27 real GDP growth forecast to 6.7%, up from its earlier estimate of 6.6%.
Growth is expected at 7% in the first quarter, followed by 6.4% in Q2, 6.5% in Q3 and 6.8% in Q4.
Malhotra said the economy performed better than expected during the first quarter, supported by strong domestic demand, a rebound in merchandise exports and continued momentum in services exports. He also pointed to healthy corporate earnings in the manufacturing sector and broad-based credit growth as signs that economic activity remains robust.
The governor, however, cautioned that agriculture could face pressure due to deficient and uneven southwest monsoon rainfall under El Nino conditions. He said adequate reservoir levels and government initiatives such as crop diversification, climate-resilient farming and water conservation should help cushion the impact on farm output.
On the external front, Malhotra said recently concluded bilateral trade agreements are expected to provide fresh support to exports. As these free trade agreements become operational and manufacturers diversify into newer markets, external demand is likely to strengthen further.
Explaining the decision to hold rates, the RBI governor said uncertainties surrounding the monsoon, inflation, geopolitical tensions and global trade developments make it prudent to wait before taking any policy action.
"There is a need for greater clarity, especially regarding inflation, its path and composition, before taking any policy action," he said.