As expected, the Reserve Bank of India (RBI), in its third monetary policy committee (MPC) meeting for FY25-26, decided to keep the repo rate, the central bank's rate for short-term loans to banks, by 50bps (basis points) unchanged at 5.5%. Consequently, the standing deposit facility (SDF) rate remains at 5.25% and the marginal standing facility (MSF) rate and the bank rate are at 5.75%. RBI also maintained its real gross domestic product (GDP) growth forecast for FY25-26 to 6.5%.
RBI governor Sanjay Malhotra, who chaired the MPC meeting, announced the decision of the six-member panel. "After a detailed assessment of the evolving macroeconomic and financial developments and outlook, the MPC voted unanimously to keep the policy repo rate under the liquidity adjustment facility lap unchanged at 5.5%."
In June 2025, the MPC decided to cut the repo rate by 50bps to 5.5% from 6%, at the lowest level in nearly three years. At that time, RBI also decided to reduce the cash reserve ratio (CRR) by 100bps to 3% from 4% of net demand and time liability.
Announcing the MPC decision on Wednesday, the RBI governor says, while headline inflation is much lower than projected earlier, it is mainly due to volatile food prices, especially of vegetables. "Core inflation, on the other hand, has remained steady around the 4% mark, as anticipated. Inflation is projected to go up from the last quarter of this financial year. Growth is robust and, as per earlier projections, though below our aspirations. The uncertainties of tariffs are still evolving. Monetary policy transmission is continuing. The impact of the 100bps rate cuts since February 2025 on the economy is still unfolding.
"Current macroeconomic conditions, outlook and uncertainties call for continuation of the policy repo rate of 5.5% and wait for further transmission of the front-loaded rate cuts to the credit markets and the broader economy. Accordingly, the MPC unanimously voted to keep the repo rate unchanged. The MPC further resolved to maintain a close vigil on the incoming data and the evolving domestic growth-inflation dynamics to chart out the appropriate monetary policy path. Accordingly, all members decided to continue with the neutral stance," Mr Malhotra says.
According to the RBI governor, the global environment continues to be challenging. "Although financial market volatility and geopolitical uncertainties have abated somewhat from their peaks in recent months, trade negotiation challenges continue to linger. Global growth, though revised upwards by the IMF, remains muted. The pace of disinflation is slowing down, with some advanced economies even witnessing an uptick in inflation."
India's domestic economy continues to show resilience, driven by robust consumption and investment trends, according to RBI's latest assessment.
Private consumption, supported by a recovery in rural demand and strong fixed investment, underpinned by buoyant government capital expenditure, is sustaining economic momentum, the central bank says, adding "On the supply side, a steady southwest monsoon is aiding kharif sowing, replenishing reservoir levels, and boosting agricultural activity. The services and construction sectors also remain strong."
"However, industrial growth remains uneven, with weakness evident in segments such as electricity and mining, leading to a subdued overall performance in the sector," it added.
Looking ahead, Mr Malhotra, the RBI governor, says the outlook for domestic growth remains positive. "The above-normal southwest monsoon, easing inflation, rising capacity utilisation, and supportive financial conditions are expected to continue bolstering economic activity. Additionally, accommodative monetary, regulatory, and fiscal policies, including strong public capital spending, are likely to support demand."
"The services sector is projected to maintain its momentum, with continued expansion in construction and trade. However, external demand faces uncertainty due to ongoing tariff measures and trade negotiations. Persistent geopolitical tensions, global financial market volatility, and broader global uncertainties remain potential risks to the growth trajectory," he added.
Taking these factors into account, RBI retained the real GDP growth projection for FY25-26 at 6.5%, with quarterly estimates at 6.5% for the first quarter (Q1), 6.7% for Q2, 6.6% for Q3, and 6.3% per cent for Q4. "Growth for Q1 of FY26-27 is projected at 6.6%. The risks to the outlook are viewed as evenly balanced."
According to RBI, consumer price index (CPI) headline inflation declined for the eighth consecutive month to a 77-month low of 2.1% in June 2025. "This was driven primarily by a sharp decline in food inflation led by improved agricultural activity and various supply-side measures. Food inflation recorded its first negative print since February 2019 at (-) 0.2 per cent in June."
High-frequency price indicators signal a continuation of the lower price momentum in food prices this year to July as well, the central bank says, adding, "Core inflation, which remained within a narrow range of 4.1%-4.2% during February-May, increased to 4.4% in June, driven partly by a continued increase in gold prices."
The inflation outlook for FY25-26 has become more benign than expected in June, RBI says. "Large favourable base effects combined with steady progress of the southwest monsoon, healthy kharif sowing, adequate reservoir levels and comfortable buffer stocks of foodgrains have contributed to this moderation. CPI inflation, however, is likely to edge up above 4% by Q4 FY25-26 and beyond, as unfavourable base effects, and demand side factors from policy actions come into play," it added.
Mr Malhotra also announced two key initiatives aimed at enhancing consumer convenience and financial market participation. These include the standardisation of procedures for settling claims related to deceased bank customers and the introduction of auto-bidding functionality for treasury bills (T-bills) on RBI's retail direct platform.
"We will be standardising the procedure for settlement of claims in respect of bank accounts, and articles kept in safe custody or safe deposit lockers of deceased bank customers. This is expected to make settlement more convenient and simpler," the RBI governor says.
Currently, under the Banking Regulation Act, 1949, customers can nominate individuals to receive funds or access safe deposit articles after their death. However, while RBI's existing instructions direct banks to adopt simplified and expeditious claim settlement procedures, the process and documentation vary across institutions, often causing unnecessary delays and hardship to legal heirs or nominees.
To address this, RBI has decided to streamline and standardise the documentation and procedures across banks. A draft circular outlining these proposed changes will be released soon for public consultation, the central bank confirmed.
In a parallel move to deepen retail investor participation in government securities, RBI has also rolled out a new auto-bidding feature on the retail direct platform for T-bills. This enhancement will allow investors to automatically place bids in primary auctions for both new investments and re-investments in T-bills.
The retail direct scheme, launched in November 2021, allows retail investors to open gilt accounts with RBI and directly buy or sell government securities (G-Secs), including treasury bills and bonds. In May 2024, the platform was further strengthened with the launch of a mobile app.
The new auto-bidding option enables investors to schedule recurring investments, similar to systematic investment plans (SIPs), in short-term government debt instruments. "This will help retail investors to plan their investments more efficiently," governor Malhotra says.
