The Reserve Bank of India (RBI) on Thursday decided to keep the repo rate unchanged at 5.25 percent, maintaining its neutral stance amid rising global uncertainties. The central bank also revised its GDP growth forecast for the financial year 2026-27 (FY27) downward to 6.6 percent, citing concerns over the ongoing conflict in West Asia and its impact on global trade and energy prices.
Monetary Policy Decision
The six-member Monetary Policy Committee (MPC) voted unanimously to hold the repo rate steady, marking the third consecutive pause in the current cycle. The reverse repo rate remains at 5.00 percent, while the marginal standing facility (MSF) rate and the bank rate were retained at 5.50 percent. RBI Governor Shaktikanta Das stated that the decision was driven by the need to balance inflation control with supporting growth, as the economy faces headwinds from external factors.
Revised GDP Forecast
The RBI lowered its FY27 GDP growth projection to 6.6 percent, down from the earlier estimate of 7.0 percent. The downward revision is attributed to escalating tensions in West Asia, which have disrupted supply chains and pushed up crude oil prices. The central bank noted that while domestic demand remains resilient, the global environment has become increasingly challenging. Governor Das highlighted that the conflict could further dampen trade and investment flows, posing risks to India's growth trajectory.
Inflation Outlook
On the inflation front, the RBI retained its retail inflation forecast for FY27 at 4.5 percent, assuming a normal monsoon and no major supply-side shocks. However, the central bank warned that geopolitical tensions could stoke food and energy prices, leading to upside risks. The MPC emphasized its commitment to bringing inflation down to the 4 percent target on a durable basis, while remaining vigilant about growth dynamics.
Market Reaction
Following the announcement, benchmark bond yields eased slightly as the status quo on rates was widely anticipated. The Indian rupee remained stable against the US dollar, while equity markets traded with a negative bias due to the lowered growth forecast. Analysts expect the RBI to maintain its accommodative stance in the near term, with potential rate cuts possible only if inflation moderates significantly and global uncertainties recede.
Key Highlights
- Repo rate held at 5.25 percent for the third consecutive meeting.
- FY27 GDP growth forecast revised down to 6.6 percent from 7.0 percent.
- Inflation forecast retained at 4.5 percent for FY27.
- West Asia conflict identified as a major risk to growth and inflation.
- MPC voted unanimously to keep rates unchanged.
The RBI's next monetary policy review is scheduled for August 2026, where the central bank will reassess the evolving economic landscape.
